The Ancient Law of Contract - Essay Example

The ancient Law of Contract though instituted so many decades behind in an entirely different socio-economic and political environment continues to be a milestone to the classical law of contract. The classical contract law has been developed through a series of political, legal and economic evolutions of the entire law of contract. What is a contract? A contract is a promise, or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty1. Before we delve into how the classical contract is linked to economic and political developments of the past, it is necessary to mention what obtained before the classical contract law. For the purpose of this study, we would make allusions to four periods in history: the medieval period, the 17th and 18th century, the 19th century and major developments in 20th century. The medieval period witnessed the existence of formal as well as informal contracts. Formal contracts constituted contracts under seal and stamps and most agreements were seal with a thumb wax. If this contract was breached, the following remedies were available: An action of covenant of which a party sued, asking the court for specific performance. Later, it developed into an action for damages and the courts were called upon to order for damages. The second remedy constituted a debt on the obligation of the other. Thirdly, penal bonds were used a remedy for breach of contract. This was an action which carried a pecuniary penalty on the fault of one party and this was most favored by litigants. Remember that the courts later shifted from this because people were left at the mercy of others. Informal agreement or parole. This was a verbal agreement and breach of it constituted: A debt sur contract (an action to claims for specific sums) and detinue (an action to enforce claims to chattels). It should be recalled that enforcement of informal agreements was impossible because there was no formal agreement, the trial method was not by jury (compurgation and wager of the law) and the debt died with the debtor. The law became unsatisfactory and there was need for better remedy. The main development here was the remedy of assumpsit – an action against a person who undertook to do something, but failed to do it (nonfeasance) or did it improperly (misfeasance). This was advantageous because the courts could award damages for breach of an informal contract and above all, heirs to a deceased debtor could be liable for his debts2. Thus, the debt no longer died with the debtor. 17th and 18th century – One of the major developments is that the courts started refusing penal bonds because of its harshness. This development was brought about by equity. The defaulter could therefore be asked to pay compensation under the equitable maxim “equity suffers not advantage to be taken on penalty or forfeiture which compensation can be made”. Parliament at that time had to uphold the Statute of Frauds because many contracting parties were trying to abuse assumpsit. In order to have a substantial claim, the Statute of Frauds obligated all contracts to be in writing and signed by all parties to it. Another development was the use of assumpsit to enforce quasi contracts. This however took the form of indebtibus assumpsit. The doctrine of assumpsit still proved wanting and the introduction of the doctrine of Concentration came to light. Concentration in contract law simply means a motivating reason why an agreement should be held as binding. This protected the defaulting party because he could not be sued while it was detrimental to the other party. This doctrine is still valid today. The 19th century can be referred to as the age of classical contract law. This is a very central and powerful concept of the law of contract and the modern law of contract has its roots in this period. During this era, the doctrine of Freedom of Contract and the Sanctity of Contract arose. Freedom of Contract was founded on the principles of natural law and laissez faire. Natural law took account of the views of philosophers who thought that every human had the right to own and sell property and to enter into any contract of one’s choice. Laissez faire entailed people to do their things in their own way without intervention of the law on the socio-economic lives of the people. It has two related principles: the making of a contract was a matter of choice and it was a matter of agreement between two people. On the other hand, the Sanctity of Contract meant to enforce all agreements between two people, whether harsh or not and with no intervention of the law. This again was found to be wanting. The 20th century saw the erosion of the doctrine of Freedom of Contract especially after the Second World War with government and parliamentary interventions in the law of contract. Part of this justification is purely political. That is to say although there should be some paternalism on contracts made by individuals3, there has been a renewed faith in some of the underlying principles behind the Freedom of Contract. There is greater belief in the life of the individual to make his own free choices and increasing delusion over the wisdom of collective and bureaucratic decision-making. Thus, a question can be asked: “should we let employees give away their rights”. It is thought that there is nothing wrong with giving them away4. What is more, political thoughts have fuelled changes and these changes have led to an increased area of activity for contract principles at the expense of public regulation. It should be noted that the declining importance attached to free choice in the 17th century led to many activities being handled by public bodies who levied taxes for this purpose. Privatization today means that most of these activities which were state-regulated will still be left at the option of freedom to contract. Another justification for the recent change of direction and one which conforms that many of these changes are likely to be permanent is that paternalism is probably less necessary today than it was a hundred years or fifty ago. People today are better educated and more sophisticated than they were centuries behind. They are in less need of paternalist protection. Of course, there will always be the socially inadequate, the feckless and irresponsible few who are unable to care properly for their economic interest, there will always be the unlucky, the disable and the unemployed for example and many in these groups may continue to stand in need of some paternalist protection, though it should not be assumed that those in need of financial support are also necessarily unable to handle their affairs once that support is provided. Put shortly, it is once again being said that Freedom of Contract is a major instrument for economic efficiency. Allowing consumers free choice means that suppliers have to produce what consumers want and an essential aspect of economic efficiency is that society should produce what consumers want. For our purposes, it is perhaps more relevant to note how it is today recognized by economist that direct legislative interference with free contract often has disastrous inefficient results. However, the matter is still open for debate and remains politically controversial. This is the more reason why most economists believe that this kind of legislation simply leads to inefficiency. Furthermore, not only does such legislative interference with freedom of contract lead to economic inefficiency, it is also now widely thought that in the long run, it tends to harm the very people that it is designed to protect. Keep in mind that the consumer is left with a “take it or leave it” option5. Then again, economist are now trying to remind lawyers (though herewith, so far little success) that interfering with some of the terms of the contract probably only affects the price of the bargain and so may prove to be idle or positively harmful to those whom it is sought to help – unless prices are also and completely controlled which is rarely desirable. That inequality of bargaining power and any results of fairness in contract terms is not a matter which the law of contract should get involved in. Inequality of bargaining power is a dangerous justification for meddling with contracts. If there is a genuine competitive market functioning well, then there should never be any problem about inequality of bargaining power because consumers can also go elsewhere. This means among other things that for the past years, government and legislative policy has aimed at least in the long run to restore Freedom of Contract in certain areas from which it has long been absent, such as rent control and minimum wage legislation. Modern writers of these economic issues are by no means oblivious to some of the arguments outlined earlier which led to the declining belief in freedom of contract. The widespread use of standard form contracts for instance and the fact that contracting parties so often do not understand or even read the terms by which they are bound, is a problem which remains to be grappled with if freedom of contract principles are once again to govern6. One possible approach to these difficulties is to try to distinguish between two of these questions. The first question is whether a contracting party has genuinely accepted the terms in question. The second question is whether those terms are themselves fair or reasonable. The first question is said to be concerned with “procedural fairness” – it addresses the procedure by which contracts are made. That is, the rules operating within the market place. It is accepted by all that this is a proper concern of the law of contract. The second question is one of “substantive fairness”, and that relates to the outcome of contracts. Many modern economic writers insist that the second question is not an appropriate question for the law to ask at all: the fairness of the terms themselves will always be reflected in the price they insist, and it is anyhow something which contracting parties must answer for them. In one sense the acceptability of these distinctions between procedural and substantive fairness is the most fundamental issue in modern contract law and theory, but as in the case of many similar ideological issues, rigid adherence to the distinction is difficult to practice. Now the current state of principles and policies underlying contract law is very difficult to summarize because we have in effect two massive trends running in opposite directions. On the one hand, we have the new trend towards a revival of freedom of contract principle, even though this means a return to early 19th century ideas. And on the other hand, we have the older trend, deriving from the late 19th century – the trend away from freedom of contract, and in fact, that the death of freedom of contract had already been proclaimed7. This older trend has been running out of steam, but it has by no means come to a complete halt. Then again, the decline in importance of contract late during the years was accompanied, by a rise a rise in the importance in the other areas in the law of obligations, particularly the law of torts and the law of restitution, both of which frequently impose liabilities on those who have not agreed to bear them. It seems unlikely that the new swing of freedom of contract pendulum will make lawyers turn their backs on these legal developments of the past, which have seemed innovative and ameliorative to most lawyers. So far as the common law is concern, the changes in the political and economic climates of the past also appear to be having some influence. Keep in mind that a legislative or judicial change on freedom of contract is has no malice on contracting parties. Instead, changes are meant to remove the secret weapon which makes the terms of the contract unfair8. Perhaps, the best is still yet to come for a complete erosion of the notion of freedom of contract. If this is feasible, then the law of contract should facilitate and encourage private planning for individuals by giving effect to the intentions with which they make their transactions and arrangements. Secondly, contract law is strongly influenced by the underlying institution of property law, so that while it recognizes and enforces transactions for the transfer of property, it does not necessarily recognize or support transfer of property and money which one person has obtained without consideration. Remember that transfers without consideration are widely thought to involve an unjust enrichment of one party to the expense of the other and this is often a ground for legal intervention. If the courts cannot intervention, the society would have “lost respect for the courts”9. Thirdly erosion of freedom of contract in contract law is also designed to prevent certain kinds of harm, particularly harm of economic nature or at least to compensate those who suffer such harm10. Above all, some interference into freedom to contract will help to protect those who have reasonably relied on the promise or behavior of others from the harm or losses which they will incur through detrimental reliance. Implore some theory of state-controlled contract, at least so as not to “undermine values of human self-fulfillment”11. Read More