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 circumstance
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.