Chapter 12

Contracts

July 10, 2022

Human actions divided into simple or mixed—Gratuitous, or accompanied with mutual obligation—Acts by way of exchange, adjustment of what is to be given or done

Partnership—Contracts—Previous equality—As to knowledge of all circumstances—As to freedom of consent, requisite in contracts of exchange, of sale, of commission and loan—Price of things in what manner to be rated—Transfer of property by sale—What kind contrary to the law of nature—Money—Its use as the standard value of all things—No abatement in the rent or hire of a thing on account of ordinary accidents—Increase or diminution of just salaries

Usury, by what law forbidden—Interest not coming under the name of usury—Insurance—Partnerships of Trade, Naval Associations—Inequality in the terms of a contract no way repugnant to the law of nations.

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 may be said to be immediately performed, when it confers an advantage, to which the person so benefitted has no direct or absolute right. As a gift transfers property, where there is no previous right.

A subject, which has been already discussed. And promises may be said to 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.

VIII. In all contracts, natural justice requires that there should be an equality of terms: insomuch that the aggrieved party has an action against the other for overreaching him. This equality consists partly in the performance, and partly in the profits of the contract, applying to all the previous arrangements, and to the essential consequences of the agreement.

IX. As to an equality of terms previous to the contract, it is evident that a seller is bound to discover to a purchaser any defects, which are known to him, in a thing offered for sale; a rule not only established by civil laws, but strictly conformable to natural justice.

For the words of agreement between contracting parties are even stronger than those, on which society is founded. And in this manner may be explained the observation of Diogenes the Babylonian, who in discussing this topic said, it is not every degree of silence, which amounts to concealment; nor is one person bound to disclose every thing, which may be of service to another. Thus for instance, a man of science is not strictly bound to communicate to another that knowledge, which might redound to his advantage.

For contracts, which were invented to promote a beneficial intercourse among mankind, require some closer and more intimate connection than bare good-will to enforce their obligation. Upon which Ambrose has justly remarked, “that, in contracts, the faults of things exposed to sale ought to be made known, of which unless the seller has given intimation, though he may have transferred the right of property by sale, yet he is liable to an action of fraud.”

148 But the same cannot be said of things not coming under the nature of contracts. Thus if any one should sell his corn at a high price, when he knows that many ships laden with grain are bound for that place, though it would be an act of kindness in him to communicate such intelligence to the purchasers, and though no advantage could be derived to him, from withholding the communication, but at the expence of charity, yet there is nothing unjust in it, or contrary to the general rules of dealing. The practice is vindicated by Diogenes in the passage of Cicero alluded to, he says, “I carried my commodities and offered them to sale, in selling them I demanded no greater price than others did; if the supply had been greater I would have sold them for less, and where is the wrong done to any one?” The maxim of Cicero therefore cannot generally be admitted, that, knowing a thing yourself, to wish another, whose interest it is to know it also, to remain ignorant of it, merely for the sake of your own advantage, amounts to a fraudulent concealment.

By no means; for that only is a fraudulent concealment which immediately affects the nature of the contract: as for instance, in selling a house, to conceal the circumstance of its being infected with the plague, or having been ordered by public authority to be pulled down. But it is unnecessary to mention, that the person, with whom a seller treats, ought to be apprised of every circumstance attending the thing offered for sale; if it be lands, whether the tenure be subject to a rent-charge, or service of any kind, or be entirely free.

Parts 10-11

Nor is the equality that has been explained confined solely to the communication of all the circumstances of the case to the contracting parties, but it includes also an entire freedom of consent in both.

In the principal act itself, the proper equality requires that no more should be demanded either party than what is just. Which can scarce have a place in gratuitous acts. To stipulate for a recompence in return for a loan, or for the service of labour or commission is doing no wrong, but constitutes a kind of mixed contract, partaking of the nature of a gratuitous act, and an act of exchange.

In all acts of exchange, this equality is to be punctually observed. Nor can it be said that if one party promises more, it is to be looked upon as a gift.

For men never enter into contracts with such intentions,149 nor ought the existence of such intentions ever be presumed, unless they evidently appear. For all promises or gifts, in these cases, are made with an expectation of receiving an equivalent in return. “When, in the words of Chrysostom, in all bargains and contracts, we are anxious to receive MORE and give LESS than is due, what is this but a species of fraud or robbery?”

The writer of the life of Isidorus in Photius, relates of Hermias, that when any thing, which he wished to purchase was valued at too low a rate, he made up the deficiency of the price, thinking that to act otherwise was a species of injustice, though it might escape the observation of others. And in this sense, may be interpreted the law of the Hebrews.

Part 12:

There remains another degree of equality to be considered, arising out of the following case. It may happen in contracts that although nothing is concealed, which ought to be made known, nor more exacted or taken by one party than is due, yet there may be some inequality without any fault in either of the parties.

Perhaps, for instance there might be some unknown defect in the thing, or there might be some mistake in the price. Yet, in such cases, to preserve that equality, which is an essential requisite in all contracts, the party suffering by such defect or mistake, ought to be indemnified by the other. For in all engagements it either is, or ought to be a standing rule, that both parties should have equal and just advantages.

It was not in every kind of equality that the Roman law established this rule, passing over slight occasions, in order to discourage frequent and frivolous litigation. It only interposed its judicial authority in weighty matters, where the price exceeded the just value by one half. Laws indeed, as Cicero has said, have power to compel, or restrain men, whereas philosophers can only appeal to their reason or understanding. Yet those, who are not subject to the power of civil laws ought to comply with whatever reason points out to them to be just: So too ought they, who are subject to the power of human laws, to perform whatever natural and divine justice requires, even in cases, where the laws neither give nor take away the right, but only forbear to enforce it for particular reasons.

Part 13

There is a certain degree of equality, too, in beneficial or gratuitous acts, not indeed like that prevailing150 in contracts of exchange, but proceeding upon a supposition of the hardship, that any one should receive detriment from voluntary services, which he bestows. For which reason a voluntary agent ought to be indemnified for the expence or inconvenience, which he incurs, by undertaking the business of another. A borrower too is bound to repair a thing that has been damaged or destroyed. Because he is bound to the owner not only for the thing itself, by virtue of the property which he retains in it, but he owes a debt of gratitude also for the favour of the loan; unless it appears that the thing so lent would have perished, had it even remained in possession of the owner himself. In this case, the owner loses nothing by the loan. On the other hand, the depositary has received nothing but a trust. If the thing therefore is destroyed, he cannot be bound to restore what is no longer in existence, nor can he be required to make a recompence, where he has derived no advantage; for in taking the trust he did not receive a favour, but conferred one. In a pawn, the same as in a thing let out for hire, a middle way of deciding the obligation may be pursued, so that the person taking it is not answerable, like a borrower, for every accident, and yet he is obliged to use greater care, than a bare depositary, in keeping it safe. For though taking a pledge is a gratuitous acceptance, it is followed by some of the conditions of a contract. All these cases are conformable to the Roman law, though not originally derived from thence, but from natural equity. Rules, all of which may be found among other nations. And, among other works, we may refer to the third book and forty-second chapter of the Guide for doubtful cases, written by Moses Maimonides, a Jewish writer.

Upon the same principles the nature of all other contracts may be explained; but the leading features in those of certain descriptions seemed sufficient for a treatise like the present.