The Online Library of Liberty

A project of Liberty Fund, Inc.

• Preface
• An Introduction to the Philosophy of Law
• I: The Function of Legal Philosophy
• II: The End of Law
• III: The Application of Law
• IV: Liability
• V: Property
• VI: Contract (followed By Bibliography)

VI

Contract

WEALTH, in a commercial age, is made up largely of promises. An important part of everyone’s substance consists of advantages which others have promised to provide for or to render to him; of demands to have the advantages promised which he may assert not against the world at large but against particular individuals. Thus the individual claims to have performance of advantageous promises secured to him. He claims the satisfaction of expectations created by promises and agreements. If this claim is not secured friction and waste obviously result, and unless some countervailing interest must come into account which would be sacrificed in the process, it would seem that the individual interest in promised advantages should be secured to the full extent of what has been assured to him by the deliberate promise of another. Let us put this in another way. In a former lecture I suggested, as a jural postulate of civilized society, that in such a society men must be able to assume that those with whom they deal in the general intercourse of the society will act in good faith, and as a corollary must be able to assume that those with whom they so deal will carry out their undertakings according to the expectations which the moral sentiment of the community attaches thereto. Hence, in a commercial and industrial society, a claim or want or demand of society that promises be kept and that undertakings be carried out in good faith, a social interest in the stability of promises as a social and economic institution, becomes of the first importance. This social interest in the security of transactions, as one might call it, requires that we secure the individual interest of the promisee, that is, his claim or demand to be assured in the expectation created, which has become part of his substance.

In civil-law countries the interest of the promisee, and thus the social interest in the security of transactions, is well secured. The traditional requirement of a causa ciuilis, a civil, i.e., legal, reason for enforcing a pact, gave way before natural-law ideas in the eighteenth century. Pothier gave over the contract categories of the Roman law as being “very remote from simplicity.” Then came the rise of the will theory of legal transactions in the nineteenth century. French law made intention of gratuitously benefiting another a causa. The Austrian code of 1811 presumed a causa, requiring a promisor to prove there was none. And this means that he must prove the promise was not a legal transaction—that there was no intention to enter into a binding undertaking. In the result, abstract promises, as the civilian calls them, came to be enforced equally with those which came under some formal Roman category and with those having a substantial presupposition. Modern Continental law, apart from certain requirements of proof, resting on the same policy as our Statute of Frauds, asks only, Did the promisor intend to create a binding duty?

Likewise in civil-law countries the enforcing machinery is modern and adequate. The oldest method of enforcement in Roman law was seizure of the person, to coerce satisfaction or hold the promisor in bondage until his kinsmen performed the judgement. Later there was a pecuniary condemnation or, as we should say, a money judgment in all cases, enforced in the classical law by universal execution or, as we should say, by involuntary bankruptcy. But along with this remedy specific relief grew up in the actio arbitraria, a clumsy device of specific performance on the alternative of a heavy money condemnation, which repeated itself in Pennsylvania before equity powers were given the courts, and is substantially repeating in our federal courts in their attempts to apply equitable relief to torts committed in foreign jurisdictions. The civil law developed, or perhaps the canon law developed and the civil law took over, an actio ad implendum or action to require performance, with natural execution, that is a doing by the court or its officers at the expense of the defendant, of that to which he is bound as ascertained by the judgment. In general in civil-law countries today what we call specific performance is the rule. A money reparation for breach of contract is the exceptional remedy. It is only when for some reason specific relief is impracticable or inequitable, as in contracts of personal service, that money relief is resorted to.

In countries governed by the common law we do not secure this interest so completely nor so effectively. For one thing we do not recognize as legally enforceable all intentional promises intended to be binding upon the promisor. Many technical rules as to consideration, rules having chiefly a historical basis, stand in the way. Many jurisdictions have abolished private seals and have made no provision for formal gratuitous or abstract promises. Moreover, we do not give specific relief ordinarily but only exceptionally where pecuniary relief is considered inadequate. Hence in the great majority of cases the promisee cannot compel performance in specie.

If we look into the reasons for this wide and effective enforcement of promises in the one system and narrower and less effective enforcement in the other, we come in both cases upon a mixture of historical background and philosophical reasoning, each influencing the other and neither governing the subject completely. Philosophical theories have arisen to explain existing rules and have been the basis of new rules and of remaking of old ones. But they have been the means also, at times, of intrenching the rules they sought to explain and of fastening on the law doctrines of which it were better rid. Nowhere is the reciprocal action of legal rules and philosophical theories more strikingly manifest than in our law of contractual liability.

Law did not concern itself at first with agreements or breaches of agreements. Its function was to keep the peace by regulating or preventing private war and this only required it to deal with personal violence and with disputes over the possession of property. I may remind you of the proposition of Hippodamus in the fifth century bc that there were but three subjects of lawsuits, namely, insult, injury and homicide. If a dispute over breach of an agreement led to an assault and a breach of the peace, tribunals might be called on to act. But it was the assault not the breach of agreement with which they were concerned. Controversy as to possession of property was a fertile source of disturbance of the peace and tribunals would entertain an action to recover possession. Agreements to compound for a wrong are perhaps the earliest type. But the law had its eye upon the need of composition, not upon the agreement. No basis for a law of contracts was to be found in the power of the tribunals with respect to injuries although our law did make assumpsit out of trespass on the case. On the other hand recovery of property could be used for this purpose. Hence the first legal, as distinguished from religious, contract was worked out on the analogy of a real transaction. Before this, however, another possibility had developed in the religiously sanctioned promise.

Religion, the internal discipline of the organized kindred, and the law of the state were three co-ordinate agencies of social control in ancient society. Nor was law for a long time the chief of these nor the one which covered the widest field. If the gods had been called to witness or good faith had a religious sanction, the duty to keep a promise was a matter for religion. Otherwise the mere pact or agreement not within the cognizance of the priests was but a matter for self-help. Hindu law shows the idea of religious duty to keep faith in full vigor. In the Hindu system the relation between the parties to a debt is not legal but religious and now that a law has grown up under English influence it is said that there is a legal obligation because there is a religious obligation. A man is bound in law because and to the extent that he is bound in religion and not otherwise and no more. To the Hindu lawyer a debt is not an obligation merely. It is a sin the consequences whereof follow the debtor into another world. Vrihaspati says: “He who, having received a sum lent or the like does not return it to the owner, will be born hereafter in his creditor’s house a slave, a servant, a woman or a quadruped.” Narada says that when one dies without having paid his debt, “the whole merit of his devotions or of his perpetual fire belongs to his creditors.” In short the debtor is looked on as one who wrongfully withholds from the creditor the latter’s property and hence as in some sort a thief. The legal idea, so far as there is one, is not one of obligation but of a property right in the creditor. One may suspect that religious obligation arising from the detention of property is a legal way of putting it in a polity in which social control is primarily religious and religious precepts are turning into legal precepts. At any rate the Hindus carry the idea of religious obligation so far that a descendant is bound to pay the debts of his ancestor in many cases whether he receives any assets of the ancestor or not. The liability of the son to pay the father’s debt is held to arise from the moral and religious duty of rescuing the father from the penalties attaching in a future state to non-payment of debts. Accordingly if the debt is of such a kind that no penalties would so attach, there is no religious duty and hence no obligation imposed upon the descendant.

Roman law in its earliest stage was not unlike this. Agreements of themselves were not cognizable by the tribunals. It was no ground for summoning a defendant before the magistrate that he had made a promise and had broken it. Agreements were matters for religion or for kin or guild discipline. If one had called on the gods to witness his promise or sworn to fulfil it, he was liable to pontifical discipline. The presence of an impious oath breaker was a social danger and he might be devoted to the infernal gods. As law replaced religion as the controlling regulative agency, the old religiously sanctioned promise becomes a formal legal contract. Thus in the strict law we get formal contracts with their historical origin in religious duty, and formal contracts with their historical origin in a legal duty created by a real transaction of suretyship or conveyance, perhaps by calling the people to witness so that there is an affront to the state if they are called upon in vain.

When contact with Greek philosophers set the Roman jurists to thinking about the basis of obligation, there were two sorts of promises: (1) Formal promises, (a) by stipulation, using the sacramental word spondeo and thus assuming the pouring out of a libation that the gods might take notice of the promise, (b) by public ceremony apparently symbolizing a real transaction before the whole people, (c) entered upon the household books of account, and (2) mere informal promises not recognized by law. The latter depended wholly on the good faith of the maker since the law had put down self-help which formerly had been available to the promisee. Accordingly Roman jurists distinguished civil obligations and natural obligations—those recognized and secured legally and those which primarily had only a moral efficacy. A nudum pactum or mere agreement or mere promise, not clothed with legal efficacy because it did not come within any of the categories of legal transactions sanctioned by the ius ciuile, created only a natural obligation. It was right and just to adhere to such a pact, but only contracts, undertakings recognized by law because of their form or nature, were enforceable.

With increasing pressure of the social interest in the security of transactions through economic development and commercial expansion, the natural-law philosophy slowly affected this simple scheme of formal undertakings legally recognized and enforceable and informal undertakings of only moral efficacy, and brought about the complicated system of enforceable undertakings in the maturity of Roman law with which you are familiar. Four features of this movement are noteworthy. In the first place it led to a juristic theory of formal contract which has affected our ideas ever since. In the strict law the source of obligation was in the form itself. For in primitive thinking forms have an intrinsic efficacy. It has often been pointed out that the faith in legal forms belongs to the same order of thought as faith in forms of incantation and that legal forms are frequently symbols to be classed psychologically with the symbols of magic. The stage of equity and natural law, relying on reason rather than on form, governed by philosophy instead of by naïve faith, looked for the substance and found it in a pact preceding and presupposed by the formal ceremony. Thus a formal contract was a pact with the addition of legal form. The pact was the substance of the transaction. The form was a causa ciuilis or legal reason for enforcing the pact. But if the form was only a legal reason for enforcing something that got its natural efficacy in another way, it followed that there might well be other legal reasons for enforcement besides form. Consequently new categories of contract were added to the old formal contracts and it is significant that while the latter were transactions stricti iuris the former were considered transactions bonae fidei involving liability to what good faith demanded in view of what had been done. In the scope of their obligation these contracts responded exactly to the postulate of civilized society that those with whom we deal will act in good faith and will carry out their undertakings according to the expectations of the community. On the other hand the old formal contracts responded thereto in part only since their obligation was one to do exactly what the terms of the form called for, no more and no less. When one makes nexum, said the Twelve Tables, as he says orally so be the law. New categories were added in successive strata, as it were, and juristic science sought afterward to reduce them to system and logical consistency. Thus real contracts, consensual contracts and innominate contracts were added. But it is evident that many of these are juristic rationalizings of what had been done for a long time through formal transactions. Thus the consensual contract of sale with its implied warranties rationalizes transfer by traditio with stipulations for the price and for warranties. The real contract of depositum rationalizes fiducia cum amico. The real contract of mutuum rationalizes pecunia credita. But the latter was so thoroughly established as a formal transaction that the case of a loan of money, analytically a real contract, preserved the incidents of the strict law. Moreover certain pacts, pacta adiecta, pacta praetoria, became actionable which do not fit into the analytical scheme of the Institutes. For example, a causa or reason for enforcing these pacts was found in their being incidental to something else or in a pre-existing natural obligation which they undertook to satisfy. There still remained natural obligations which had not been given legal efficacy as the basis of actions. The mere will of the person who undertook or the claim of the promisee was not a reason for enforcing. Yet in reason they were morally binding and the legal and moral should coincide. Hence they might be used defensively or as the basis of a set-off. Meanwhile the forms of stipulation and of literal contract had been reduced to their lowest terms by conceiving them in terms of substance, and taking orally expressed agreement to be the substance of the one and writing to be the substance of the other. The results have defied analysis although the best that juristic ingenuity could do has been expended upon them for centuries.

In the Middle Ages primitive ideas came back for a time through Germanic law. General security in its lowest terms of peace and order was the pressing social interest. There was little commercial activity. The civilization of the time did not involve the corollaries of our jural postulate. Religiously sanctioned undertakings by promissory oath and real transactions of pledge of person or property and of exchange gave rise to a simple system of formal undertakings. Out of these came a theory of causa debendi, or reason for owing the promised performance, which has had a profound influence upon subsequent thinking. The Roman causa ciuilis was a legal reason for enforcing a pact. Under the influence of the Germanic idea causa becomes a reason for making the pact, the good reason for making it furnishing a sufficient reason for enforcing it. For a time it seemed that the church might succeed in establishing a jurisdiction over promises. Oaths and vows involved religious duties and might well be claimed as the province of the spiritual. But the moral obligation of pacts, binding the conscience of a Christian, might also be cognizable by a zealous corrector of the conduct of the faithful for their soul’s welfare. Had not the power of the canon law broken down and the law of the state developed rapidly in respect of the security of transactions after the sixteenth century, the law of contracts might have grown along religious instead of along philosophical lines, and perhaps not to its advantage. As it is, one need but read Doctor and Student with the title de pactis of the Corpus Iuris Canonici and casuist writings as to the moral efficacy of promises before him, to see that religion paved the way for much that was done presently in the name of philosophy.

To the jurists of the seventeenth and eighteenth centuries no distinction between natural obligations and civil obligations was maintainable since all natural rights or obligations must for the very reason that they were natural be legal also. If it was morally obligatory that one adhere to a pact, then it must be treated as a contract. However much systematized analytically, the Roman categories of contract did not deal with undertakings from this standpoint. What the jurists desired was not analytical categories but a principle upon which men were to be held or not to be held upon their promises. Thus the philosophy of contract, the principles underlying the binding force of promises and agreements, became the chief problem of philosophical jurisprudence of the seventeenth century, as interests of personality were the chief subject of discussion in the eighteenth century, and interests of substance, the philosophy of the law of property, the chief subject of discussion in the nineteenth century. The decisive element in seventeenth-century thought as to contract was the idea of natural law; the idea of deduction from the nature of man as a moral creature and of legal rules and legal institutions which expressed this ideal of human nature. But the idea was put to work upon existing materials and the result was a reciprocal influence of the conception of enforcing promises as such because morally binding, on the one hand, shaped to some extent by canon law and casuist discussions of what promises were binding in conscience and when, and the ideas of nudum pactum and causa debendi on the other hand. Roman law was assumed to be embodied reason. As D’Aguesseau put it, Rome was ruling by her reason, having ceased to rule by her authority. Hence all consideration of the subject starts with the assumption that there are morally naked agreements which for that reason are to be naked legally. Where there was an exchange of promises there was the authority of Justinian for enforcement (synallagma) and it was easy to find a reason in the analogy of exchange of property. Where something was exchanged for a promise, that something was a causa debendi. But suppose there was no exchange of promises nor was anything exchanged for the promise. There was nothing but a promise assented to. In Roman law this would have to take the form of a stipulation. In the Germanic law it would have required an oath or the form of a real transaction of pledge or exchange. At common law it required delivery of a sealed instrument. Clearly there was no moral efficacy inherent in these forms. Why should these “abstract” promises be enforced and not others? Should every such promise be enforced or should none be enforced without something in the way of exchange, or should such promises be classified for the purpose of enforcement, and if so, how?

Two theories arose in the seventeenth century. One may be called the theory of an equivalent. This theory is obviously a rationalization of the Germanic causa debendi influenced by canon law and casuist writings. According to this theory an abstract promise, no equivalent having been given for it, is not naturally and hence is not legally binding. Three reasons have been given for this which have figured in juristic discussion of the subject ever since. It was said that one who trusts another who makes a promise for no equivalent does so rashly. He cannot ask to be secured in such an unfounded expectation. This is too much in the spirit of the strict law. It denies any interest except where the law secures it. It says that if the law does not secure the interest, one is a fool to rely on the promise and so has no interest. In like manner the strict law said that if one gave his formal undertaking through fraud or mistake or coercion, he was a fool or a coward and was not to be helped. But we cannot prove the interest by the law. We must measure the law with reference to the interest. Again it was said that if one promises without equivalent he does so more from “ostentation” than from real intention and so an equivalent shows that he acted from calculation and deliberately. It is only deliberate promises that are morally binding, for only such promises are relied upon by the prudent, upright man in his intercourse with his neighbors. If this reason is sound, equivalent is only a mode of proving deliberation and the real point should be that the promise was made deliberately as something by which the maker expected to be bound, not that the deliberation was evidenced in a particular way by an equivalent. A third reason was that one who parted with an equivalent in exchange for or in reliance on a promise is injured in his substance if the promise is not kept. But if this is the reason, the law should simply require restitution in case of non-performance. If the interest involved is the deduction from substance through rendering the equivalent, the obligation should be quasi ex contractu rather than ex contractu.

Our Anglo-American law of contracts was much influenced by this theory of equivalents. In the seventeenth century four types of promise were legally enforceable at common law: (1) A formal acknowledgment of indebtedness by bond under seal, often conditioned upon performance of a promise for which it was a security, (2) a covenant or undertaking under seal, (3) the real contract of debt, and (4) a simple promise upon consideration, that is, in exchange for an act or for another promise. The first conclusively acknowledged an equivalent, in the second it could be said that the seal presupposed or implied one, in the third the obligation arose from the detention of something by him to whom it had been delivered, and in the fourth the act or counter-promise was the motive or consideration for the promise and as a cause of or reason for making it was the equivalent for which the promisor chose to assume the undertaking. With some aid from a dogmatic fiction in the case of covenants, the common law could be adjusted to this theory reasonably well. Accordingly as far back as Bacon we find consideration treated from this standpoint in the English books. But it was never a satisfactory explanation. If the theory was sound it ought not to matter whether the equivalent was rendered before the promise or after it or simultaneously with it. Indeed, English equity in the nineteenth century took subsequent action in reliance upon a promise of a gift to be a common-law consideration on the basis whereof the promise was specifically enforceable. Equity never wholly adopted this or any other theory. At least after the middle of the eighteenth century equity was supposed to follow the law as to what was a contract. But the common law was not settled till the nineteenth century and we find the chancellors using consideration frequently to mean not equivalent but any reason for making the promise and thus making it synonymous with the civilian’s causa. The so-called meritorious consideration, consideration of blood and of love and affection, and the cases of promises sustained by moral obligation of a debtor to secure his creditor, of a husband to settle property on his wife and of a parent to provide for a child, show the idea of causa at work in equity. It is significant that Doctor and Student was often cited in these connections. The most thoroughgoing attempt to apply the equivalent theory to be found in the books is Langdell’s working out of a system of the so-called conditions implied in law or dependent promises on that basis. As an example of vigorous legal analysis it rivals Austin. But it did not succeed in shaping the law.

On the Continent the second theory, the theory of the inherent moral force of a promise made as such, came to prevail. This was the theory of Grotius. It was generally adopted by Continental writers of the eighteenth century and, as has been seen, it broke down the Roman categories and led to the rule that a promise as such, intending a legal transaction, created legal obligation. At the end of the eighteenth century Lord Mansfield came very near establishing it in our law by his doctrine that no promise made as a business transaction could be nudum pactum. But he was too late. Growth stopped for a season and the nineteenth century set itself to systematize and harmonize what it had received rather than to carry the development further.

When the natural-law foundation of enforcing promises crumbled, the metaphysical jurists sought to provide a new one. Kant said that it was impossible to prove that one ought to keep his promise, considered merely as a promise, and deduced contract from property as a form of conveyance or alienation of one’s substance involved in the very idea of individual rights. So far as consistent with abstract freedom of will according to a universal law one might alienate his services as well as his property, and an undertaking to perform something was an alienation of that sort. This view was generally taken so that while the seventeenth century sought to rest rights upon contract and the eighteenth century rested contract on the inherent moral significance of a promise, the nineteenth century, making the philosophy of property the important thing, rested contract on property. Three of these theories are worth a moment’s notice.

Fichte says that the duty of performing an agreement arises when one party thereto begins to act under it. Juristically this seems to be a rationalization of the Roman innominate contract. There, in case a pact was performed on one side, he who performed might claim restitution quasi ex contractu or claim the counter-performance ex contractu. Philosophically the idea seems to be that of the equivalent theory, in the form with which we are familiar in Anglo-American discussion of this subject as the injurious-reliance theory. According to the latter, unless the promisee has parted with an equivalent or has begun to act in reliance upon the agreement, he has no moral claim to fulfilment. This is not a theory of the law as it is or as it ever has been. Formal contracts require nothing of the sort. It is true, English equity, under the influence of the equivalent theory, did lay down in the nineteenth century that a contract under seal with no common-law consideration behind it would not be enforced. But that proposition was subject to many exceptions when it was announced, more have since developed and more are developing. As things are, the exceptions are of more frequent application than the rule itself. Nor is Fichte’s theory a statement of moral ideas of his day or of ours. Then and now the moral duty to keep abstract promises was and is recognized. That a man’s word should be “as good as his bond” expresses the moral sentiment of civilized society. But the philosopher saw that the law did not go so far and was trying to frame a rational explanation of why it fell short. It should be noticed that Fichte is really trying to show why a promise may be regarded as a part of one’s substance and why one’s claim to performance may be treated as his property.

Hegel also explains contract in terms of property, treating a promise as a disposition of one’s substance. Hence in his view the so-called abstract promise is a mere subjective qualification of one’s will which he is at liberty to change. This theory and the foregoing assume the Roman law or the older law of Continental Europe, and speak from the reaction from natural law which in England at the same time was overruling the liberal doctrines of Lord Mansfield.

Later metaphysical jurists rely upon the idea of personality. The Romanist thinks of a legal transaction as a willing of some change in a person’s sphere of rights to which the law, carrying out his will, gives the intended effect. If the transaction is executed, revocation would involve aggression upon the substance of another. If it is executory, however, why should the declared intent that the change take place in the future be executed by law despite the altered will of the promisor? Some say that this should be done where there is a joint will from which only joint action may recede. Where the parties have come to an agreement, where their wills have been at one, the law is to give effect to this joint will as a sort of vindication of personality. It is evident, however, that this explanation assumes the will theory, the subjective theory of legal transactions. If we start from the objective theory it breaks down. Take for instance the case of an offer, which a reasonable man would understand in a given way, accepted by the offeree in that understanding when the offerer really meant something else. Or take the case of an offer wrongly transmitted by telegraph and accepted in good faith as it is transmitted. Here there is no community of will and yet the law may well hold, as we do in America, in both cases, that there is a contract. No metaphysical theory has prevailed to prevent the steady march of the law and of juristic thought in the direction of an objective doctrine of legal transactions. Nowhere, indeed, has the deductive method broken down so completely as in the attempt to deduce principles upon which contracts are to be enforced.

Later in the nineteenth century men came to think more about freedom of contract than about enforcement of promises when made. To Spencer and the mechanical positivists, conceiving of law negatively as a system of hands off while men do things, rather than as a system of ordering to prevent friction and waste so that they may do things, the important institution was a right of free exchange and free contract, deduced from the law of equal freedom as a sort of freedom of economic motion and locomotion. Justice required that each individual be at liberty to make free use of his natural powers in bargains and exchanges and promises except as he interfered with like action on the part of his fellow men, or with some other of their natural rights. Whether all such transactions should be enforced against him or only some, and if the latter, which, are questions belonging to an affirmative rather than to a negative science of law.

Historical jurists accepted the will theory and have been its leading advocates in modern times. They saw that the whole course of legal history had been one of wider recognition and more effective enforcement of promises. Those who accepted the ethical idealistic interpretation of legal history could see freedom as an ethical idea realizing itself in a larger freedom of self-assertion and self-determination through promises and agreements and a wider giving effect to the will so asserted and determined. For the most part they wrote on the Continent where the field of legally enforceable promises had ceased to be bounded by a narrow fence of Roman historical categories. Thus they had no call to rationalize dogmas of not enforcing promises made as business transactions. Those who accepted the political interpretation saw freedom as a civil or political idea realizing itself in a progress from status to contract in which men’s duties and liabilities came more and more to flow from willed action instead of from the accident of social position recognized by law. The English historical jurists might well have asked how far English rules as to consideration were consonant with the implications of such a theory, and whether they must not be expected to give way as the idea unfolded more completely in experience of popular action and judicial decision. But the leader of this school was not a common-law lawyer and the American historical jurists devoted their energies to devising a historical-analytical theory of consideration rather than to the wider question of what promises should be enforced and why.

Here as in other places the historical jurist and the utilitarian were in agreement as to results although they differed widely as to the mode of reaching them. The former saw in contract a realization of the idea of liberty. The latter saw in it a means of promoting that maximum of individual free self-assertion which he took to be human happiness. Hence the former called for freedom of contract and should have called for wide general enforcement of promises. The latter held to a doctrine of unshackling men and allowing them to act as freely as possible, which involved the complementary position of extending the sphere and enforcing the obligation of contract. The difference between these ways of thinking and those of the end of the eighteenth century is brought out if we compare Blackstone (1765) with a dictum of Sir George Jessel a century later (1875). The former says that the public is “in nothing so essentially interested as in securing to every individual his private rights.” The latter, discussing a question of what agreements are against public policy and therefore unenforceable, says: “If there is one thing more than another which public policy requires it is that men of full age and competent understanding shall have the utmost liberty of contracting and that such contracts shall be enforced by courts of justice.” But the utilitarians put the emphasis upon the first, the negative, rather than upon the second, the affirmative, part of this twofold program. This is true also of the historical jurists and of the positivists. The English trader and entrepreneur was not seeking for legal instruments. He could work passably with those which the law furnished if the law would but let him. What he sought was to be free from legal shackles which had come down from a society of a different nature organized on a different basis and with other ends. Hence juristic thought addressed itself to this for a season rather than to the doctrine of consideration and the reason for non-enforcement of deliberate promises where not put in the form of bargains.

No one of the four theories of enforcing promises which are current today is adequate to cover the whole legal recognition and enforcement of them as the law actually exists. Putting them in the order of their currency, we may call them (1) the will theory, (2) the bargain theory, (3) the equivalent theory, (4) the injurious-reliance theory. That is, promises are enforced as a giving effect to the will of those who agree, or to the extent that they are bargains or parts of bargains, or where an equivalent for them has been rendered, or where they have been relied on by the promisee to his injury, according to the theory chosen. The first is the prevailing theory among civilians. But it must give way before the onward march of the objective theory of legal transactions and is already fighting a rear-guard action. In our law it is impossible. We do not give effect to promises on the basis of the will of the promisor, although our courts of equity have shown some tendency to move in that direction. The attempt in the nineteenth century to Romanize our theories of liability involved a Romanized will-theory of contract. But no one who looks beneath the surface of our law reports can doubt that the attempt has failed wholly. We no longer seek solutions on every side through a pedantic Romanized law of bailments and in the law of bailments itself we are coming to talk in common-law terms of negligence in view of the circumstances and not in Romanist terms of the willed standard of diligence and corresponding degrees of negligence. In America, at least, the objective theory of contract is orthodox and the leader of English analytical jurists of the present generation has expounded it zealously. Courts of equity, which inherit modes of thought from the time when the chancellor searched the conscience of a defendant by an examination under oath, and believed he could reach subjective data that were beyond the cognizance of a jury, are the last stronghold of the exotic subjective theory in the common law.

Probably the bargain theory is the one most current in common-law thinking. It is a development of the equivalent theory. It will not cover formal contracts but under its influence the formal contracts have been slowly giving way. The seal “imports” a consideration. Legislation has abolished it in many jurisdictions and often it does no more than establish a bargain prima facie, subject to proof that there was in fact no consideration. Courts of equity require a common-law consideration, at least on the face of their general rule, before they will enforce a sealed contract. Also the formal contracts of the law merchant are subject to defeat by showing there was no consideration, except when in the hands of holders for value without notice. Here, however, consideration is used in the sense of equivalent, to the extent of admitting a “past consideration,” and the bargain theory, appropriate to simple contracts, is not of entire application. On the other hand the extent to which courts today are straining to get away from the bargain theory and enforce promises which are not bargains and cannot be stated as such is significant. Subscription contracts, gratuitous promises afterwards acted on, promises based on moral obligations, new promises where a debt has been barred by limitation or bankruptcy or the like, the torturing of gifts into contracts by equity so as to enforce pacta donationis specifically in spite of the rule that equity will not aid a volunteer, the enforcement of gratuitous declarations of trust, specific enforcement of options under seal without consideration, specific performance by way of reformation in case of security to a creditor or settlement on a wife or provision for a child, voluntary relinquishment of a defense by a surety and other cases of “waiver,” release by mere acknowledgment in some states, enforcement of gifts by way of reformation against the heir of a donor, “mandates” where there is no res, and stipulations of parties and their counsel as to the conduct of and proceedings in litigation—all these make up a formidable catalogue of exceptional or anomalous cases with which the advocate of the bargain theory must struggle. When one adds enforcement of promises at suit of third-party beneficiaries, which is making headway the world over, and enforcement of promises where the consideration moves from a third person, which has strong advocates in America and is likely to be used to meet the exigencies of doing business through letters of credit, one can but see that Lord Mansfield’s proposition that no promise made as a business transaction can be nudum pactum is nearer realization than we had supposed.

Yet the equivalent theory and the injurious-reliance theory are even less adequate to explain the actual law. The equivalent theory must wrestle at the outset with the doctrine that inadequacy of consideration is immaterial so that the equivalency is often Pickwickian. Hegel could argue for it on the basis of the Roman laesio enormis. But when a court of equity is willing to uphold a sale of property worth $20,000 for $200, even a dogmatic fiction is strained. Moreover the catalogue of anomalies with which the bargain theory must wrestle contains more than one difficulty for the adherent of either theory. Stipulations in the course of litigation do not need equivalents nor do they need to be acted on in order to be enforceable. A release by mere acknowledgment, when good at all, needs no equivalent and need not be acted on. Waiver by a surety of the defense of release by giving time to the principal needs no element of consideration nor of estoppel. Defectively executed securities, settlements and advancements need no equivalent and need not be acted on in order to be reformed. Options under seal are held open in equity on the basis of the seal alone. A gratuitously declared trust creates an obligation cognizable in equity without more. In truth the situation in our law is becoming much the same as that in the maturity of Roman law and for the same reason. We have three main categories. First, there are formal contracts, including sealed instruments, recognizances, and the formal contracts of the law merchant, in which latter the form consists in the use of certain words, requirements as to sum certain, payment at all events, and certainty as to time. Second, there are the real contracts of debt and bailment. Third, there are simple contracts, without form and upon consideration. The latter is the growing category although the formal contracts of the law merchant have shown some power of growth and the business world has been trying to add thereto letters of credit using the formal words “confirmed” or “irrevocable.” But the category of enforceable simple promises defies systematic treatment as obstinately as the actionable pacts in Roman law. Successive additions at different times in the endeavor of courts to hold men to their undertakings, in view of the social interest in the security of transactions and the jural postulates of the civilization of the day, proceed on all manner of different theories and different analogies and agree only in the result—that a man’s word in the course of business should be as good as his bond and that his fellow men must be able to rely on the one equally with the other if our economic order is to function efficiently. It is evident that many courts consciously or subconsciously sympathize with Lord Dunedin’s feeling that one can have no liking for a doctrine which enables a promisor to snap his fingers at a promise deliberately made, fair in itself, and in which the person seeking to enforce it has a legitimate interest according to the ordinary understanding of upright men in the community. It is significant that although we have been theorizing about consideration for four centuries, our texts have not agreed upon a formula of consideration, much less our courts upon any consistent scheme of what is consideration and what is not. It means one thing—we are not agreed exactly what—in the law of simple contracts, another in the law of negotiable instruments, another in conveyancing under the Statute of Uses and still another thing—no one knows exactly what—in many cases in equity.

Letters of credit afford a striking illustration of the ill-adaptation of our American common law of contract to the needs of modern business in an urban society of highly complex economic organization. Well known abroad and worked out consistently on general theories in the commercial law of Continental Europe, these instruments came into use in this country on a large scale suddenly during the war. There was no settled theory with respect to them in our books and the decisions warranted four or five views leading to divergent results in matters of vital moment to the business man who acted on them. Characteristically the business world set out to make of them formal contracts of the law merchant by the use of certain distinctive words which gave the instruments character and made their nature clear to those who inspected them anywhere in the world. But for a season our category of mercantile specialties had ceased to admit of growth and the doctrine of consideration with its uncertain lines stood in the way of many things which the exigencies of business called for and business men found themselves doing in reliance on each other’s business honor and the banker’s jealousy of his business credit, with or without assistance from the law. Certainly no one would say that such a situation bears witness to wise social engineering in an economically organized society resting on credit.

Two circumstances operate to keep the requirement of consideration alive in our law of simple contract. One is the professional feeling that the common law is the legal order of nature, that its doctrines in an idealized form are natural law and that its actual rules are declaratory of natural law. This mode of thinking is to be found in all professions and is a result of habitual application of the rules of an art until they are taken for granted. In law it is fortified by the theory of natural law which has governed in our elementary books since Blackstone, was taught to all lawyers until the present century, and is assumed in much of our judicial decision. Later it was strengthened by the theories of the historical school which ruled in our law schools in the last quarter of the nineteenth century and taught us to think that growth must inevitably follow lines which might be discovered in the Year Books. These things co-operated with the temper of the last century and the instinctive aversion of the lawyer to change, lest in some unperceived way a door be opened to magisterial caprice or to the personal equation of the judge. Thus some thought of consideration, whatever it was, as inherent in the very idea of enforceable promises. Others assumed that it was a historically developed principle by which the future evolution of the law of contracts must be governed. Many others simply thought that it was dangerous to talk of change. And yet change has gone on rapidly, if subconsciously, until the present confused mass of unsystematized and unsystematizable rules has resulted. The second circustance operating to keep alive the requirement of consideration is a more legitimate factor.

Nowhere could psychology render more service to jurisprudence than in giving us a psychological theory of nuda pacta. For there is something more than the fetish of a traditional Latin phrase with the hallmark of Roman legal science behind our reluctance to enforce all deliberate promises simply as such. It should be compared with the reluctance of courts to apply the ordinary principle of negligence to negligent speech, with the doctrine as to seller’s talk, with the limitations upon liability for oral defamation and with many things of the sort throughout our law. All of these proceed partly from the attitude of the strict law in which our legal institutions first took shape. But they have persisted because of a feeling that “talk is cheap,” that much of what men say is not to be taken at face value and that more will be sacrificed than gained if all oral speech is taken seriously and the principles applied by the law to other forms of conduct are applied rigorously thereto. This is what was meant when the writers on natural law said that promises often proceeded more from “ostentation” than from a real intention to assume a binding relation. But this feeling may be carried too far. Undoubtedly it has been carried too far in the analogous cases above mentioned. The rule of Derry v. Peek goes much beyond what is needed to secure reasonable limits for human garrulousness. The standard of negligence, taking into account the fact of oral speech and the character and circumstances of the speech in the particular case, would amply secure individual free utterance. So also the doctrine that one might not rely on another’s oral representation in the course of a business transaction if he could ascertain the facts by diligence went much too far and has had to be restricted. Likewise we have had to extend liability for oral defamation. Accordingly because men are prone to overmuch talk it does not follow that promises made by business men in business dealings or by others as business transactions are in any wise likely to proceed from “ostentation” or that we should hesitate to make them as binding in law as they are in business morals. Without accepting the will theory, may we not take a suggestion from it and enforce those promises which a reasonable man in the position of the promisee would believe to have been made deliberately with intent to assume a binding relation? The general security is more easily and effectively guarded against fraud by requirements of proof after the manner of the Statute of Frauds than by requirements of consideration which is as easy to establish by doubtful evidence as the promise itself. This has been demonstrated abundantly by experience of suits in equity to enforce oral contracts taken out of the Statute of Frauds by great hardship and part performance.

Revived philosophical jurisprudence has its first and perhaps its greatest opportunity in the Anglo-American law of contracts. The constantly increasing list of theoretical anomalies shows that analysis and restatement can avail us no longer. Indeed the lucid statement of Williston but emphasizes the inadequacy of analysis even when eked out by choice from among competing views and analytical restatements of judicial dogma in the light of results. Projects for “restatement of the law” are in the air. But a restatement of what has never been stated is an impossibility and as yet there is no authoritative statement of what the law of consideration is. Nothing could be gained by a statement of it with all its imperfections on its head and any consistent analytical statement would require the undoing of much that the judges have done quietly beneath the surface for making promises more widely enforceable. Given an attractive philosophical theory of enforcement of promises, our courts in a new period of growth will begin to shape the law thereby and judicial empiricism and legal reason will bring about a workable system along new lines. The possibilities involved may be measured if we compare our old law of torts with its hard and fast series of nominate wrongs, its distinctions growing out of procedural requirements of trespass and trespass on the case and its crude idea of liability, flowing solely from causation, with the law of torts at the end of the nineteenth century after it had been molded by the theory of liability as a corollary of fault. Even if we must discard the conception that tort liability may flow only from fault, the generalization did a service of the first magnitude not only to legal theory but to the actual administration of justice. No less service will be rendered by the twentieth-century philosophical theory, whatever it is, which puts the jural postulate of civilized society in our day and place with respect to good faith, and its corollary as to promises, in acceptable form, and furnishes jurist and judge and lawmaker with a logical critique, a workable measure of decision and an ideal of what the law seeks to do, whereby to carry forward the process of enlarging the domain of legally enforceable promises and thus enlarging on this side the domain of legal satisfaction of human claims.

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