Contracts and Exchange

Parts 1-2

Some social human actions are either:

• simple
  • Examples are purely gratuitous service. This is either:
    • immediate
    • to take place at some future time
• mixed
  • Examples are exchange.

A beneficial service confers an advantage to which the person so benefitted has no direct or absolute right. An example is a gift that transfers property, where there is no previous right.

Promises that relate to some future gift, or action, of which a full and sufficient explanation has before been given.

Services accompanied with mutual obligation are those where the use of a thing is allowed to any one without a complete alienation, or where labour is given in expectation of some valuable consideration.

Under the first of these heads we may reckon the loan and use of all consumable or inconsumable property: and under the latter we may place all commissions to transact business, or all trusts to preserve the property of another. Similar to which are all promises of something to be done, except that they regard a future time. And in this view145 we may consider all the actions, which are now to be explained.

Part 3: Exchange

In all acts of exchange, there is either:

• an adjustment of shares, or
• the profits are regarded as a common stock.

Such adjustments are made by the Roman Lawyers in the following terms:

“I give this to receive that in return, I do this in order for you to do that, or I do this for you to give me that.“29

But the Romans exclude from that adjustment certain kinds of contracts, which they call EXPRESS ENGAGEMENTS.

Not because they are entitled to any such peculiar name more than the simple acts of exchange already mentioned: but because from frequent use they have naturally derived a character similar to that of the original contract, from which they are named, though they are not attended exactly with the same circumstances, nor expressed directly in the same terms. Whereas in other contracts less frequently in use, the form was confined to an exact statement of all the circumstances of the case. An action upon which was therefore called by the Roman law an ACTION IN PRESCRIBED WORDS.

For the same reason, if those contracts, which are in general use, be accompanied with any of the requisite formalities, as in a bargain or sale, if the price had been agreed upon, though no part of the agreement had been performed by either of the parties, the civil law enforced an obligation to fulfil them.

But as it considers those contracts which are seldom used, more in the light of voluntary engagements, depending upon the good faith of the respective parties, than upon legal obligation, it leaves both sides at liberty to relinquish them at any time prior to their being naturally performed.

Distinctions of this kind are unknown to the law of nature, which gives SIMPLE AGREEMENTS equal authority with those, that are included by civilians in the class of EXPRESS CONTRACTS.

And on the score of antiquity their pretensions are far superior. It is therefore perfectly conformable to the principles of nature to reduce the adjustment of all agreements, without any regard to the distinction between SIMPLE and EXPRESS CONTRACTS, to the three species already named.

Thus, for instance,146 one thing is given for another, which constitutes barter, the most ancient kind of traffic; the next step in the progress of commercial intercourse is where one kind of money is given for another, a transaction which by merchants is called exchange; and a third species of contract is where money is given for any thing, as in the acts of selling and buying. Or the USE of one thing may be given for that of another; money also may be given for the USE of a thing, which last method constitutes the acts of letting and hiring.

The term use is to be understood here as applied not only to the bare unproductive use of a thing, but to that which is attended with profit, whether it be temporary, personal, hereditary or circumscribed, as was the case among the Hebrews with regard to transfers, which could be made for no longer a time than till the year of Jubilee.

The very essence of a loan consists in a return of the same kind of thing after a stated period. A return which can take place only in things regulated by weight, number, or measure, whether it be in commodities or money. But the exchange of labour branches out into various kinds of recompence or return.

As, for instance, a person gives his labour for money, which in the daily transactions of life is called hire or wages: where one undertakes to indemnify another for accidental losses or damages, it is called insurance: a species of contract scarce known to the ancients, but now forming a very important branch in all mercantile and maritime concerns.

IV.

Acts of communication are those, where each contributes a share to the joint stock. Perhaps on one side, money, and on the other, skill and labour may be given.

But in whatever way these concerns are regulated, they come under the denomination of partnerships. With this class we may rank the alliances of different states in war. And of the same description are those naval associations of individuals, so frequently formed in Holland for protection against pirates or other invaders, which is generally called an Admiralty, and to which the Greeks gave the name of a joint fleet.

Parts 5-6

Mixed actions are either such in themselves, or made so by some adventitious circumstance. Thus if I knowingly give one person a greater price for a thing than I can purchase it for of another, the excess of price may be considered partly as a gift, and partly as a purchase. Or if I engage a goldsmith to make me any147 article with his own materials, the price which I give will be partly a purchase, and partly wages.

The feudal system too might be considered as a train of mixed contracts. Where the grant of the fee might be considered as a beneficial act; but the military service required by the Lord, in return for his protection, gave the fee the nature of a contract, where a person did one thing expecting for it the performance of another. But if any payment is attached to it by way of acknowledgement, it partakes of the nature of a quit rent. So money sent to sea by way of venture is something compounded of a contract, of a loan, and of an insurance.

Part 7

All acts beneficial to others, except those that are purely gratuitous, come under the denomination of contracts.