Gavin Howe
Contract law is a complex area of legal study, with various ideologies and theories influencing its interpretation and application. At its core, contract law is concerned with obligations among parties who share a special relationship, often commercial or social. The success of a contract theory is measured by its ability to explain and fit contract law doctrines, which are sometimes contested, and by its alignment with moral complexities and our understanding of what the law is and should be. The interpretation of contract law involves a range of judicial ideologies, from formalist approaches that focus on the literal or purposive aspects of contracts to realist approaches that consider the context and relationships between parties. The former includes the traditional 'black-letter' approach, while the latter includes the 'law in context' school, emphasising the dynamic nature of contract interpretation. The field of contract law is constantly evolving, with new dimensions being explored, such as the constitutional aspects and the impact of online platforms on contractual relationships.
| Characteristics | Values |
|---|---|
| Contract law concerns obligations among parties with a special relationship | Freedom and autonomy |
| Efficiency | |
| Commercial and social relationships | |
| Shared perspective | |
| Recognition | |
| Independent person | |
| Special normative status | |
| Duty of good faith in performance | |
| Transfer of rights | |
| Consideration doctrine |
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What You'll Learn
Contract law and the value of shared perspective
Contract law is a complex and interpretive field, with various ideologies and theories influencing its application. One of the key aspects of contract law is the idea of shared perspective and the value it brings to contractual relationships. This concept is deeply rooted in the understanding that contracts involve coordination and cooperation among multiple parties, each with their distinct interests and perspectives.
The value of a shared perspective in contract law can be seen as a recognition of the independent status of each party involved. When promisors (those making a promise) and promisees (those receiving a promise) enter into a contract, they acknowledge each other's agency and autonomy. This shared perspective becomes the foundation of the contractual relationship, fostering a duty of good faith in performance. All parties are expected to uphold the terms of the contract and treat each other with fairness and honesty, respecting the rights and obligations established.
The importance of this shared perspective is highlighted by Markovits (2014), who considers the duty of good faith in performance as the core doctrine of contract law. This perspective also aligns with the concept of "'special relationships' proposed by Raz (1977), where the creation and maintenance of these relationships are held to be valuable. By recognising the shared perspective, contract law reinforces the integrity and trustworthiness of the parties involved.
However, it is worth noting that not all theories of contract law place equal emphasis on the value of a shared perspective. Some theories, such as the economic approach, focus more on the instrumental nature of contracts and the coordination of multiple parties with diverse interests. This approach often prioritises efficiency and the regulatory behaviour of firms or artificial entities, where concerns about freedom and autonomy may be less relevant.
Despite these differing ideologies, the value of a shared perspective in contract law remains significant. It provides a framework for understanding and interpreting contractual obligations, encouraging parties to view each other as independent and autonomous agents. This perspective also underscores the importance of good faith and fairness in contractual relationships, contributing to the overall integrity and effectiveness of contract law.
In conclusion, the concept of a shared perspective in contract law is a powerful tool for interpreting and enforcing contractual obligations. By recognising the independent status of each party and fostering a duty of good faith, contract law creates a foundation of trust and integrity that is essential for maintaining social and commercial relationships. While various theories may emphasise different aspects of contract law, the value of a shared perspective remains a fundamental principle that shapes the way we understand and apply contractual obligations.
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The economic approach
This perspective on contract law deviates from the traditional understanding of contracts as agreements between multiple parties. Instead, it emphasizes the role of shareholders and their diversified portfolios. The economic approach to contract law also raises questions about the criteria for measuring the success of a contract theory. These theories often involve balancing considerations of fit and justification, reflecting competing views about the purpose and ideal state of the law.
One version of the economic approach to contract law emphasizes that contracts typically arise within pre-existing commercial or social relationships. This perspective acknowledges the value of these relationships among contracting parties, suggesting that contractual obligations are grounded in a shared perspective. According to this view, the duty of good faith in performance, mandated by common law in every contract, is a core doctrine. It requires parties to uphold their commitments to the shared perspective of the contract relation during its administration.
Another variation of the economic approach to contract law focuses on the transfer of rights as the central principle. This perspective deviates from other theories that consider the consideration doctrine as poorly justified and peripheral to contract law. By emphasizing the transfer of rights at the moment of contract formation, this interpretation highlights a different aspect of contractual relationships.
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The duty of good faith
Canadian contract law recognises the duty of good faith, particularly in situations where an imbalance of bargaining power exists between the parties involved. This includes negotiations between franchisors and franchisees, insurers and insured parties, and fiduciary relationships. In addition, Canadian law distinguishes between two duties requiring parties to act in good faith: the first pertains to pre-contractual relations and the duty to negotiate in good faith, while the second duty involves acting honestly in the performance of the contract.
English law, on the other hand, does not traditionally impose a duty of good faith on contracting parties. However, there is a growing body of cases where a duty of good faith has been implied, particularly in commercial contracts that are 'relational' in nature. A relational contract is typically long-term and requires collaboration and cooperation between the contracting parties, with a mutual regard for each other's interests. While English law does not imply a general duty of good faith in all commercial contracts, it does impose restrictions on the exercise of contractual discretion.
Australian contract law is also moving towards recognising good faith in some manner, although there is still a lack of clarity and leadership on the topic. The case of Bhasin v Hrynew highlighted the close relationship between honesty and good faith, with Justice Cromwell emphasising that honesty is often used to give substance to good faith in Australian contract law. However, the content and scope of a duty of good faith remain difficult to define and enforce in Australian jurisprudence.
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The consideration doctrine
Consideration is the price one pays for another's promise. It can take various forms, including money, property, a promise, the doing of an act, or refraining from doing an act. In other words, it is a promise of something of value given by a promisor in exchange for something of value given by a promisee. For example, if Jack agrees to sell his car to Jill for $100, Jill's payment of $100 is the consideration for Jack's promise to give Jill the car, and vice versa.
The benefit-detriment theory and the bargain theory are two theories that attempt to explain consideration. The benefit-detriment theory implies that courts are implicitly analyzing if the parties are receiving a sufficient benefit. On the other hand, the bargain theory considers the subjective intentions of the parties without examining the adequacy of consideration. While the benefit-detriment theory was favoured in the past, the bargain theory has largely replaced it in modern contract theory.
The primary criticism of the doctrine of consideration is that it is a mere formality that complicates commerce and creates legal uncertainty. In practice, it has led to a phenomenon similar to Ḥiyal in Islamic contracts, where parties use technicalities to satisfy requirements while circumventing them. Some commentators have suggested that the doctrine of consideration should be abandoned and replaced by estoppel as a basis for contracts. However, any change to the doctrine would require legislation rather than judicial development.
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Formalist and realist approaches
Formalism, or legal formalism, is a prescriptive theory of law that maintains that legal formalism is necessary to uphold the separation of powers. By limiting judges to adjudicating what the law currently is, rather than what it ought to be, legal formalism prevents the judiciary from encroaching on the powers of the legislative and executive branches. Formalism is committed to an ex-post, rule-bound, doctrinalist, and modest approach to legal adjudication. It contributes to simple, generalizable, and cost-effective decision-making and is consistent with the institutional competence of courts. Formalism reduces the risks and overall costs of legal mistakes and increases predictability, thereby protecting the legitimate expectations of contracting parties.
However, formalism has been criticised as a naïve and unsophisticated approach to the adjudication of legal disputes, particularly in American legal culture and contract law. Critics argue that formalism is ill-suited to resolve injustice or promote fundamental rights.
In contrast to formalism, legal realism replaced formalism as the dominant theory of legal thought in the United States from the 1920s onwards. While formalism assumes that contract law is an instrumentally justified legal institution, realism may embrace the view that contractual obligations are grounded in the value of a shared perspective. On one version of this view, the value lies in the recognition that promisors and promisees treat each other as independent persons, imbued with the special normative status that asserting contractual authority involves. This approach treats the duty of good faith in performance as contract law's core doctrine.
Another version of the realist approach focuses on the transfer of rights, which occurs at the moment of contract formation. Here, the consideration doctrine is regarded as the central organising principle of contracts, rather than a marginal element.
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Frequently asked questions
Contract law concerns obligations among parties who have a special relationship with each other, including the relationship constructed by the contract itself.
There are competing theories of contract law that strike different balances between considerations of fit and justification. These theories are based on competing views about what the law is and what it should be.
One theory emphasizes that contracts generally (or always, according to some theorists) arise inside already existing commercial and even social relationships.
Another theory suggests that contractual obligations are grounded in the value of a shared perspective. This approach treats the duty of good faith in performance as the core doctrine of contract law.
