Classical Theory of Contracts

Introduction:

Before the 19th century, the existing moderate viewpoint of laissez-faire gave rise to contract theory in the legal world. Contract theory was developed around the will theory of contract which proposed that a contract between two parties exists on the basis of their own free will.

Classical Theory of contract states that if consideration is recognized by the court, then it will become legally binding. But new theories rely on the consent of parties if they want to make it legally binding or not. To date, the work of classical lawyers has remained valuable and relevant to modern contract law. Three central aspects of the classical theory are- First, independence and distinctiveness of contractual obligation. Second, freedom of contract. Third, a unified law of contract binding by the rules of general application.

Independence of Contract

The central aim of the classical theory was to create a clear contractual space out of the general law of obligation. Many changes like privatization of state-owned companies and contracting-out lead to a massive expansion in the classical theory of contract but are not in fact legally enforceable. The classical contract theory was created by conceptualizing a contract as an institution or thing. There were two themes that explained the intuitive rules(consideration, offer and acceptance, and so forth). The first is a voluntary entry into the contract. The second theme is the protection of detrimental reliance.

The intersection of these themes explains two central aspects of the classical rules. First, the introduction of ‘formal entry criteria’ ties in with both themes.  Formalism acts as a safeguard against unintentional subjection to a legal obligation and the performance of required acts of formality is powerful evidence that the parties intend to be bound. Second, characteristic of classical contracts institutive rules is a tension between these twin themes of voluntariness and detrimental reliance.

To establish a contract an offer must be met with the appropriate acceptance. These requirements reveal that all contracts contain promises. Contracts possess several fundamental features that distinguish them from forms of private obligation recognized by law like tort on the one hand and fiduciary obligation on the other. A contract may be understood by establishing a contract between contract obligations and these neighbors. A contractual obligation does not just come into being in connection with a choice but is, rather, itself chosen-directly intended into existence. The lawyer Samuel Williston once observed that “why a man should not be able to make himself liable if he wishes to do so”.

The distinction between contract and tort may be understood by reading it off the face of legal doctrine. Furthermore, the classical obligation of tort law-includes both obligations concerning intentional torts, and negligence-contract obligation is not fault-based but rather a strict liability.

Freedom of Contract

The second doctrine of classical contract law was freedom of contract. In the twentieth century, increased judicial and legislative intervention in the laws has undermined this doctrine. The beginning of the decline of freedom of contract was because of social and political transformation. 

The erosion of the doctrine of freedom of contract has principally been affected by regulation of the substantive terms of particular contract types, either by parliament or through the implication of terms at common law. A further step away from the classical ideal would recognize a duty of good faith in contract performance a possibility canvased in several of the essays in this collection the roles that the good faith doctrine might perform in English contract law are evident from experiences in two legal systems, the American and the German.

 The doctrine has two main functions namely-the limitation of the exercise of contractual discretion and the prevention of a sudden change of behavior by contracting parties. This works best where the desired remedy is a discretionary one. As Friedmann observed that where the remedy in question gives no leeway to the judge or requires no judicial intervention, the limits of this particular method of countering opportunism become glaringly apparent.

However, the parties may themselves classify a particular term as a condition or specify that breach of it is fundamental and, in such cases, a good faith doctrine would empower the courts to differentiate between repudiations that are opportunistic and those that are not.

The decline of freedom of contract in some areas of the contract will be accelerated, while in other areas the doctrine will continue to play an important role.

Unified Contract Law

The classical contract theorists endeavored ‘to develop a general body of contract law applicable to each kind of contract and overshadowing the various branches of specific contracts’. According to classical theory, the contract was sightless, being blind to details of person and subject matter. It does not state anything about who sells and who buys, and what is sold and bought. Freedom of contract was appropriate to the dealings between businesses of similar bargaining power. There are three differentiating factors of unified contract law-identity of the parties, the subject matter of the contract, and relational and discrete contracts.

The different branches of contract law are loosely connected by a conceptual framework, but this core is shaking all the time as more doctrines that hold contract together fragment under the strain of powerful centrifugal force pulling it down.

There is now a large body of legislation such as the Consumer Credit Act, 1974, and the unfair Contract Terms Act, 1977. In these acts, distinctions are drawn between consumers and non-consumers in order to ensure that the particular needs of the formal hour are satisfied. There are two main reasons to differentiate between consumers and other contract parties. First, because consumers are in a weak position from which to bargain with commercial organizations, and, secondly because the needs of consumers and commercial contractors are often different.

The best way is to create wholly separate regimes for consumer and commercial transactions. There is a real danger that the law will fail to provide adequate protection to non-consumers such as small businesses that are also vulnerable to exploitation by more powerful organizations.

Conclusion

The contribution of classical contract law theory to modern contract law is a mixed one. To some extent, they shared a similar point of view. Cases such as Chappell and co vs. Nestle [AC 87], suggest that consideration need not be adequate. On the other hand, Stilk vs. Myrick [EWHC KB J58] illustrates that consideration must be sufficient. But, the massive view of Classical Lawyers is outdated and adverse. In order to fulfill the needs of the gradually increasing complexity of today’s society, modern law must become more robust and sophisticated.

References:

1. Daniel Friedmann, J. B. (., . .). The Classical Legacy and Modern English Contract Law. Onlinelibrary. https://onlinelibrary.wiley.com/doi/pdfdirect/10.1111/j.1468-2230.1966.tb02103.x
2. All Answers Ltd. (November 2018). What Principles Governed ‘Classical Contract Law’?. Retrieved from https://www.lawteacher.net/free-law-essays/contract-law/is-classical-contract-relevant-to-modern-contract-law-law-essay.php?vref=1
3. Gray, C. (1980). The Ages of Classical Contract Law. The Yale Law Journal, 90(1), 216-231. doi:10.2307/795862
4. https://www.researchgate.net/publication/286944980_The_classical_theory_of_contract_law_and_the_discussion_about_judicial_adjustment_of_contracts
5. http://core.ac.uk/
6. Murray, J. E. (2002). Contract Theories and the Rise of Neoformalism. Fordham Law Review, 71(3), 47. https://ir.lawnet.fordham.edu/flr/vol71/iss3/10/