Contract

(Latin contractus; Old French contract; Modern French contrat; contratto).

I. THE CANONICAL AND MORALIST DOCTRINE

The canonical and moralist doctrine on this subject is a development of that contained in the Roman civil law. In Roman law a mere agreement between two parties to give, do, or refrain from doing something was a nude pact (pactum nudum) which gave rise to no civil obligation, and no action lay to enforce it. It needed to be clothed in some investitive fact which the law recognized in order to give rise to a civil obligation which should be enforced at law. Not that the nude pact was considered to be destitute of all binding force; it gave rise to a natural obligation, and it might afford ground for a legal exception. A man of honour would keep his engagements even if he knew that the law could not be invoked to compel him to do so. Moral theology, being the science of Christian conduct, could not be satisfied with the mere legal view of the effect of an agreement. If the agreement had all other requisites for a valid contract, moral theology must necessarily consider it to be binding, even though it was a nude pact and could not be enforced in the courts of law. Canon law made this moral attitude its own. In the Decretals of Gregory IX it is expressly laid down that pacts, however nude, must be kept, and that a strenuous endeavour must be made to put in execution what one has promised. It thus came to pass that nude pacts could be enforced in the Christian courts, and the Church's legislation served eventually to break down the rigid formalism of Roman law, and to prepare the way for the more equitable law of contract which all Christian nations now possess.

In the canonical and moral doctrine there is hardly room for the distinction between a nude pact, or mere agreement, and a contract. The Roman jurist's definition of the former is frequently used by canonists to define contract. They say that a contract is the consent of two or more persons to the same proposal; or, bringing out a little more definitely the effect and object of a contract, they define it to be an agreement by which two or more persons mutually bind themselves to give, do, or abstain from something. From the moralist's point of view, then, every agreement seriously entered into by those who are capable of contracting with reference to some lawful object is a contract, whether such agreement can be enforced in the civil courts or not. The intention of the parties is looked at, and if they seriously intended to bind themselves, there is a contractual relation between them. This doctrine, however, gives rise to a question of some importance. The Church fully admits and defends the right of the State to make laws for the temporal well-being of its citizens. All States require certain formalities for the validity of certain actions. Last wills and testaments are a familiar example, and although they are not strictly contracts, yet the principle is the same and they will serve for an example of what is meant. A deed, the only formal contract of English law, is another example. A will destitute of the requisite formalities is null and void at law; but what is the effect of such a voiding law in the forum of conscience? This question has been much debated among moralists. Some have maintained that such a law is binding in the internal as well as in the external forum, so that a formal contract, destitute of the formalities required by law, is null and void in conscience as it is in law. Others adopted the contrary opinion, and held that the want of formality only affected the external forum of civil law, and left intact the natural obligation arising from a contract. The common opinion takes a middle course. It holds that the want of formality, though it makes the contract void in the eyes of the law, renders it only voidable in the forum of conscience; so that, until one of the parties moves to set the contract aside, it remains valid, and anyone deriving benefit under it may enjoy his benefit in peace. If, however, the party interested moves to set it aside, and does so effectively by having recourse to the court of law if necessary, both must then abide by the law which makes the contract void and of no effect.

There are four essential elements in a contract:

consent of the parties,
contractual capacity in them,
determinate and lawful subject-matter, and
a lawful consideration.

The contract is formed by the mutual consent of the parties, which must be real, not feigned, and manifested so that each may know that the other party consents. There is no difficulty about the outward manifestation of consent when the parties enter into the contract in each other's presence. But when the parties are not present to each other, and the contract is made by letter or telegraph, it sometimes becomes a question of importance as to when and how the contract is effected. Is the contract entered into when the offeree signifies his consent by posting a letter of acceptance to the offeror, or is the knowledge of his acceptance required to complete the contract? All that is required by the nature of a contract is that there should be mutually manifested agreement of the two wills. There will be such agreement when one of the parties makes an offer to the other, and this one manifests his acceptance of the offer by posting a letter or by sending a telegram. There is then consent of two wills to the proposal, and so there is a contract. Mutual consent to the same proposal may be hindered by a mistake of one of the parties. Such mistakes are not infrequently caused by the fraud or misrepresentation of the other party. If the mistake is substantial, so that at least one of the parties thinks that the subject-matter of the contract is quite other than it really is, there will be no true consent, and no contract. Similarly, if there be a mistake about the nature of the contract proposed (as, if one party intends to sell while the other only means to borrow) there is no agreement of wills. Mistake about the mere quality of the subject-matter of the contract is accidental, not substantial, and in spite of it there may be substantial agreement between the parties. If, however, such a mistake has been caused by the fraud or misrepresentation of the other party to the contract, and the party deceived would not otherwise have entered into it, it is only fair that the deceived party should be able to protect himself from injury by retiring from the agreement. Contracts, then, entered into because of accidental mistake which was induced by the fraud or misrepresentation of the other party, will be rescindable at the option of the party deceived.

The consent of the parties must be deliberate and free, for a perfect and grave obligation cannot arise from consent which is not deliberate or free. Hence we must see what the influence of fear is upon the validity of a contract. If the fear goes to the length of depriving one of the parties of the use of reason, he cannot, while in that state, give a valid consent, and the contract will be null and void. Fear, however, does not ordinarily produce such extreme effects; it leaves a man with the natural use of his reason and capable of consenting or withholding his consent. Even grave fear, then, does not of itself invalidate a contract, but if it is unjustly caused by the other party to the contract with a view to forcing him who is under its influence to consent, the injured party may withdraw from the contract. Some contracts, such as marriage, thus entered into under the influence of grave fear unjustly caused by the other party to the contract with the intention of compelling consent, are made invalid by canon law. Some authorities even hold that all such contracts are invalid by natural law, but the opinion is at most only probable. A person must have the use of reason in order to give valid consent to a contract, and his contractual capacity must not have been taken away by law. Those who have not yet attained the use of reason, imbeciles, and those who are perfectly drunk so that they do not know what they are doing, are incapable of contracting by the law of nature. Minors are to a certain extent restricted in their contractual capacity by English and American law. Practically, their contracts are voidable except those for necessaries. Married women were formerly incapable of entering into a valid contract, but in England since 1882 their disability has been removed, and in most of the States of the Union the same doctrine begins to prevail. Religious persons are to a greater or less extent, according as they are under solemn or simple vows, incapable of entering into a binding contract. Corporations and companies are limited in their contractual capacity by their nature or by the articles of association.

The subject-matter of a contract must be definite and certain, it must be possible, and it must be honest. A contract cannot be a bond of iniquity, and so an agreement to commit sin is null and void. Some theologians maintain that when, in execution of a contract, a sinful action has been performed, a right is acquired to receive the price agreed upon. The opinion seems at any rate probable. If the contract is not sinful in itself, but voided by positive law, it will be valid until it is set aside by the party interested, as was said above concerning informal contracts. When persons enter into a contract, each party promises to give, do, or forbear something in favour of the other. The benefit which thus immediately arises from the contract, and which is the cause of it, is called the consideration in English law. It is a necessary element in a contract, and if it is wanting the contract is null on account of the failure of a necessary condition in the agreement. The courts of civil law will not enforce a simple contract unless there be a valuable consideration in it; mere motives of affection or moral duty will not suffice. This rule, however, only affects legal obligations; it has nothing to do with obligations in conscience. A valid contract imposes on the contracting parties an obligation of justice to act conscientiously according to the terms of the agreement. They will be bound to perform not only what they expressly agreed to do, but whatever the law, or custom, or usage prescribes in the circumstances. The obligation arising from a contract will cease when the contract has been executed, when a new one has been substituted for the old one by the free consent of the parties, when the parties mutually and freely withdraw from the contract. When one of the parties fails in what he promised, the other will, as a rule, be free. A contract may be concluded not absolutely but conditionally on the happening of some uncertain and future event. In this case the conditional contract imposes on the parties the obligation of waiting for the event, and in case it happens the contract becomes binding on them without renewal of consent. On the other hand, a contract is sometimes entered into and begins to bind at once; but the parties agree that it shall cease to bind on the happening of a certain event. This is called a condition subsequent, while the former is a condition precedent.

II. IN CIVIL JURISPRUDENCE

In civil law, a contract is defined as the union of several persons in a coincident expression of will by which their legal relations are determined. This "co-incident expression" consists of an agreement and promise enforceable in law, and "on the face of the matter capable of having legal effects", "an act in the law" "whereby two or more persons capable of contracting", "of doing acts in the law", "declare their consent as to any act or thing to be done or forborne by some or one of those persons for the use of the others or other of them" (Pollock, "Principles of Contract", 3rd Amer. ed., New York, 1906, 58, 1, 2, 3), the intention implied by the consent being that from the agreement and promise shall arise "duties and rights which can be dealt with by a court of justice" (ibid.). Thus, while every contract is an agreement, not every agreement is a contract. A mutual consent of two persons to walk out together, or to dine together, would be an agreement, and yet not what in jurisprudence is known as a contract. For such consent contemplates the producing of no legal right, or of any duty which is a legal obligation. Subject only to these or similar explanations may be properly adopted the time-honoured definition of contract as understood in English law, a definition commended by Chancellor Kent ("Commentaries on American Law", II, 449, note b) for its "neatness and precision", namely, "an agreement of two or more persons upon sufficient consideration to do or not to do a particular thing".

Kinds of Contract

The Roman civil law defined contracts as real (re), verbal (verbis), literal (litteris), or consensual (consensu). A real contract was one, such as loan or pledge, which was not perfected until something had passed from one of the parties to the other. A verbal contract (verborum obligatio), or stipulation, was perfected by a spoken formula. This formula consisted of a question by one of the parties and an exactly corresponding answer by the other. Thus: Quinque aureos mihi dare spondes? Spondeo, or Promittis? Promitto, i.e. "Do you agree (or promise) to give me five pieces of gold?" "I agree," or "I promise." The similarity may be noted of this to the modern form for administering an affidavit or for taking the acknowledgment of a written legal instrument. A literal contract was perfected by a written acknowledgment of debt and was used chiefly in the instance of a loan of money. Consensual contracts were those of which sale would be an example, which might be perfected by consent, and to which no particular form was essential. In the English law the principal division of contracts is into those by writing under seal (called specialties), and those known as simple contracts; and there are also "contracts by matter of record", such as a recognizance or judgment by confession, contracts in court, which need no further description. Simple contracts include all contracts written, but not under seal or of record, and all verbal contracts.

A person may contract in person or by an agent. "The tendency of modern times", remarks Holland (op. cit., 118), "is towards the fullest recognition of the principles proclaimed in the canon law, potest quis per alium quod potest facere per se ipsum, qui facit per alium est perinde ac si faciat per se ipsum," i.e. one may do through another whatever one is free to do by himself, or an act done through another is equivalent to an act done by oneself.

Requisites of Contract

According to Roman law, such a contract as that of sale required a justa causa, namely, a good legal reason. According to English law, simple contracts require a valuable consideration, in like manner as by Roman law there was needed a justa causa. By that law, informal contracts which had no justa causa were ineffectual (Poste, op. cit., 334). Stipulations irregular in form were termed nuda pacta, i.e. mere agreements, to which the ancient law attached no obligation. The Roman jurisprudence let some engagements rest on the mere integrity of the parties who contracted them, thinking it more conducive to the cultivation of virtue to leave some things to the good faith and probity of mankind than to subject everything to the compulsory authority of the law.

As the civil-law jurist admitted the moral obligation of good faith and probity, so an eminent English judge concedes that "by the law of nature" every man ought to fulfil his engagements. But it is equally true", he continues, "that the law of this country supplies no means nor affords any remedy to compel the performance of any agreement made without sufficient consideration." "Such agreement", he adds, "is nudum pactum ex quo non oritur actio", a mere agreement giving rise to no action at law, the learned judge conceding that this understanding of the maxim may (as it certainly does) differ from its sense in the Roman law. A moral consideration has been said to be "nothing in law." The moral obligation of a contract is of "an imperfect kind", to quote an eminent American jurist, "addressed to the conscience of the parties under the solemn admonitions of accountability to the Supreme Being" (Story, "Commentaries on the Constitution of the United States", 5th ed., Boston, 1891, Section 1380), but not to an earthly court of justice. With these doctrines of the Roman and of the English law we may compare the Scottish law, according to which no consideration is essential to a legal obligation, "an obligation undertaken deliberately though gratuitously being binding". "This", adds Mackenzie (op. cit., 233) "is in conformity with the canon law by which every paction produceth action et omne verbum de ore fideli cadit in debitum", i.e. every word of a faithful man is equivalent to a debt.

In the Roman law, fulfilment of the legal solemnities of the verbal contract was deemed to indicate such an intention of contracting a valid and effectual obligation, as to dispense with proof of any justa causa. In the English law it is not any verbal formality, but the solemnity of writing and sealing which dispenses with proof of that valuable consideration in modern English law analogous to the old Roman justa causa, and, as a general proposition, essential to the validity of simple contracts, although in the exceptional instance of negotiable paper always presumed, and in favour of certain holders conclusively. This consideration is described generally as the matter accepted or agreed upon as the equivalent for which the promise is made. And one promise would be a legal consideration for another. But the English law infers what a man chooses to bargain for to be of some value to him, and therefore does not allow the adequacy of the consideration to be inquired into. The consideration must, however, "be of some value in contemplation of law". A promise, for instance, to abstain from doing what the promisor has no right to do, is a promise of no value, and therefore no consideration for a contract. No obligation can by English law result from an agreement "immoral in a legal sense". By this is meant not only that it is morally wrong, but that according to the common understanding of reasonable men it would be a scandal for a court of justice to treat it as lawful or indifferent, though it may not come within any positive prohibition or penalty. The civil-law authority, Pothier, instances a promise by an officer to pay a soldier for fighting "a soldier of another regiment". If the officer pay, he has no legal claim for recovery of this consideration given and received for a wrongful act, and, on the other hand, the soldier, if he fight before receiving the agreed consideration, acquires no legal claim for it against the officer (Pothier, op. cit., 23). No one is under a legal duty to fulfil a promise to do an act opposed to the policy of the law. But there are not wanting instances of contracts opposed to the policy of the law which yet conflict with no moral law.

A contract induced by what in law is deemed to be fraud may be rescinded at the election of the party defrauded. But "general fraudulent conduct", or "general dishonesty of purpose", or mere "intention and design to deceive" is not sufficient unless these evil acts and qualities have been connected with a particular transaction, were the ground on which it took place, and gave rise to the contract. In the instance of a sale, the seller was, by the Roman civil law, held to an implied warranty that the thing sold was "free from such defects as made it unfit for the use for which it was intended" (Mackenzie, op. cit., 236). By the English law there is, if the thing be sold for a fair price and be at the time of sale in the possession of the seller, an implied warranty of title, but of quality there is no implied warranty, except as to food sold for domestic use. "The writers of the moral law," observes Chancellor Kent, "hold it to be the duty of the seller to disclose the defects which are within his knowledge. But the common law is not quite so strict. If the defects in the article sold be open equally to the observation of both parties, the law does not require the vendor to aid and assist the observation of the vendee" (Kent, op. cit., II, 484).

Respecting what may be termed generally "motives and inducements" (ibid., 487) of a contract, the same authority cites Pothier as in accord with the doctrine of English law, "that though misrepresentation or fraud will invalidate the contract of sale, the mere concealment of material knowledge which the one party has touching the thing sold and which the other does not possess, may affect the conscience, but will not destroy the contract, for that would unduly restrict the freedom of commerce; and parties must at their own risk inform themselves of the commodities they deal in" (op. cit., 491). In a note, Cicero is referred to as favouring the view that conscience forbids the concealment, the commentator adding, "It is a little singular, however, that some of the best ethical writers, under the Christian Dispensation should complain of the moral lessons of Cicero, as being too austere in their texture, and too sublime in speculation for actual use" (ibid., note d). As fraud, so coercion, termed in English law duress, or the threat of it, constitutes a valid defense to fulfilment of a contract.

Statutory Restrictions

A certain French ordonnance of 1667 has been thought to have, perhaps, suggested the English statute of 1689, which recites its purpose to be "prevention of many fraudulent practices which are commonly endeavoured to be upheld by perjury and subornation of perjury". Accordingly, the statute requires that certain contracts be in writing, and those for sales of "goods, wares or merchandise of over ten pounds price" in writing, or that there be a part-delivery or part-payment. This enactment, known as the Statute of Frauds, has, with numerous variations, been embodied in statutes in the United States (except in Louisiana), carrying, to quote from the American commentator, "its influence through the whole body of our civil jurisprudence" (Kent, op. cit., 494, note a).

By the early Roman law many contracts were enforceable by legal action after any lapse of time however long. But, to quote the Institutes, "Sacrae constitutiones....actionibus certos fines dederunt" (the imperial constitutions assigned fixed limits to actions), so that, after certain prescribed periods, no legal remedy would be provided to enforce the obligation of contracts ("The Institutes of Justinian", Bk. IV, tit. xii; Bk. II, tit. vi). Such positive restrictions on the legal remedy are in English law contained in enactments known as Statutes of Limitation (Blackstone, op. cit., Bk. III, 307). One ancient English statute fixed for limitation of certain actions the time of the coming of King John from Ireland, another statute the coronation of Henry III (Blackstone, op. cit., Bk. III, 188). But modern statutes, as well in England as throughout the United States, limit the remedy to certain periods from the time of entering into contracts, adopting the manner of the Roman constitutions. The legal maxim Leges vigilantibus non dormientibus subveniunt (the laws aid the vigilant, not the careless) is applicable to private suitors (Blackstone, op. cit.). But nullum tempos occurrit regi (no time runs against the king), and therefore, unless specially mentioned, the government is not included within the restrictions of a statute of limitations. According to ancient English legal conceptions these statutes ought not to bind the king, for the reason that he "is always busied for the public good, and therefore has not leisure to assert his right within the times limited to subjects" (ibid., Bk. I, 247).

Inviolability of Contracts

To secure inviolability of contracts, the Constitution of the United States (Art. 1, Sect. 10) provides that no State shall pass a "law impairing the obligation of contracts". By obligation is meant that legal obligation which exists "wherever the municipal law recognizes an absolute duty to perform a contract". And the word contract being used in this clause of the Constitution without qualification, the protection of the Constitution is not confined to executory contracts, but embraces also executed contracts, such as a grant which, because it amounts to an extinguishment of the right of the party, implies a contract not to reassert the right. And the Constitution also protects even state charters granted to private persons for private purposes, whether these be literary, charitable, religious, or commercial. (See also DONATION.)