Obviously it is not good for the parties to be free from all bindings and that’s why the law of contract has come before them. Explain and illustrate.

1.Introduction[1]:

Freedom of contract and sanctity of contract are the dominant ideologies of contract law. Parties should be as free as possible to make agreements on their own terms without the interference of the courts or Parliament. Their agreements should be respected, upheld, and enforced by courts. Both Czech and English law consider the principle of parties’ equality and contractual freedom or liberty to manifest the autonomy of their will as crucial. Disputes over contracts can sometimes include parties not actually part of the contract in question. When this third party disturbs the performance of the contract, they could be in violation of Interference with a Contract. If we see the law of contract during the last three or four centuries, we will find the fundamental changes in the views held with respect to the nature of contract. On those days the making of contract and breach of contract was measured by the morality. Even now in modern time the freedom of contract and sanctity of contract measured by this way. For keeping the demand of a contract this should be maintained and for maintaining this the contract should be made freely without the interference by the court or parliament. But courts and parliament always look after the system of enforcing and breaking the contract and parties who are involved in a contract as well. So parties always face some problems for the interference of the courts and parliament. Obviously it is not good for the parties to be free from all bindings and that’s why the law of contract has come before them. Parties are to follow this law otherwise the contract, made by them, will not be respected, upheld and enforced by the courts.

 2. Definition of ‘Contract:

Section, 2(h) of Contract act 1872 provides that “An agreement enforceable by law is a contract”, therefore in a contract there must be an agreement and the agreement must be enforceable by law.

An agreement comes into existence whenever two or more persons promise to one or others, to do or not to do something,

 Section, 2(e) of contract Act 1872 also provides that “Every promises and every set of promises, forming the consideration of each other is an agreement”. But every agreement can not be enforced by law only legal agreement will be enforced by law.

 According to Salmond A contract is “An agreement creating and defining obligations between the parties”.[2]

 According to Sir William Anson “A contract is an agreement enforceable at law made between two or more persons. by which right are acquired by one or more acts or forbearance on the part of the other or others”[3].

 From the above definitions it is clear to us that persons are free to make agreements and that agreements must be enforced by law if there is no illegal intention.

 3. Essential elements of a contract:

                     i.Offer and acceptance.

                   ii.Intention to create legal relationship.

                  iii.Lawful consideration.

                 iv.Capacity of parties.

                   v.Legality of objects.

                 vi.Certainty.

                vii.Possibility of performance.

              viii.Void agreements.

                 ix.Writing registration legal formalities.

4. Classification of contract[4] :

                     i.Formal or simple.

                   ii.Executed or executory.

                  iii.Express or implied (in law or in fact).

                 iv.Bilateral or unilateral.

                   v.Valid, voidable, or unenforceable.

         i.Formal or Simple: Early English law enforced only those promises that were written, signed and sealed. A formal contract, which is a promise enforceable in law, is a contract that is written, signed and sealed. Those contracts that do not require a seal are designed “simple” or “informal” contracts. The simple or informal contracts, are designated as “parol” contracts. “Parol” means “oral or verbal.” When we speak of formal versus simple contracts, we are speaking of a contract that is written, signed and sealed versus a contract that is oral.

       ii.Executed and Executory Contracts: An executed contract is one that has been fully carried out by the contracting parties. An executory contract is one that is yet to be performed. An agreement may be executed on the part of one party and executory on the part of the other.

Is the Pure Contract Trust an executed or executory contract? It is an executed contract, because the creator and exchangor have carried out the terms of the contract: (1) by exchanging Trust certificates for real and/or personal property, (2) by creating the Pure Contract Trust Organization and appointing the Board of Trustees, and (3) by conveying the real and/or personal property to the Board of Trustees. Since all the terms of the contract have been fully carried out by the contracting parties, it is an executed contract. There is nothing further to be performed as in an executory contract.

      iii.Express or Implied: A contract may result from an agreement in which all of the detailed terms are clearly set forth either in writing or orally at the time of making, in which event, it is said to be an express contract. The Pure Contract Trust is an express contract. On the other hand, a contract may be entirely implied from facts such as acts of the parties, the acts being such that a contract may be inferred from them. In other instances, the contract may be, and often is, partially expressed and partially implied.

There is a distinction between law and fact: In a sense, the rules of law that govern the relations of men are “facts.” The law is a body of rules attaching consequences to conduct or to states of fact. The defendant did certain things under certain surrounding circumstances. These are the “facts.”

There are important differences between fact and law. “Fact” is sometimes used in opposition to “law.” U.S. courts generally operate on the basis that questions of fact are for the jury to decide, while questions of law are for the court to rule on. [However, in terms of the U.S. Constitution, trial by jury means that the jury has the right and duty to judge both the fact and the law.]

Fact is an event; law is a principle.
Fact is actual; law is conceived.
Fact is that which has been according to or in contravention of the rule; law is a rule of duty.

     iv.Quasi Contract: A quasi contract (sometimes also called a “hidden” or “adhesion” contract) is an obligation to do something imposed upon someone by law but bearing the force of a contract. What does “quasi” mean? Quasi means “as if,” “almost as if it were,” and “analogous to.” Therefore, one could define a quasi contract as an “obligation as if it were a contract,” or an “obligation analogous to a contract.” A quasi contract does not have all the ingredients of a contract, but is treated by law as a contract (such as the Social Security Act). It’s a common law principle that for a contract to be valid it needs to be entered into knowingly, willingly, and intentionally. Individuals who stand on their common law rights reject the validity of all such quasi contracts. As you’ll see below, these quasi contracts don’t satisfy the definition of a contract.

       v.Bilateral and Unilateral Contracts: A bilateral contract is one that is to be performed on each side at some future time. A bilateral contract involves two promises, one made by each of the parties to the agreement. A unilateral contract consists of a promise for an act, the acceptance consisting of the performance of the act requested rather than the promise to perform it.

Is the Pure Contract Trust a bilateral or unilateral contract? It’s a bilateral contract. For example, a lost and found ad for a lost pet is a unilateral contract, because the acceptance consists of the performance of the act, rather than the promise to perform it.

     vi.Void able Contract: A voidable contract is one that, for some reason of the court, may be set aside at the request of the parties. It differs from a contract that is void in that it cannot be enforced by either party.

 5. Meaning of ‘freedom of contract[5]:

The emphasis during the nineteenth century on individual freedom and the role of agreements in extending that freedom would seem to have required that no obligation in the nature of a contract should be enforced unless willed by the parties; yet the judges were ready to import terms into contracts and develop and enlarge restrictions in the public interest although the parties themselves had not expressed those terms or established those restrictions. There is no doubt but that the early common law rules whereby a man was held strictly to his promise, no more and no less, might operate harshly and unfairly in many instances. In consequence the lot of a person who, for some good reason, found himself unable to secure all that he thought he had bargained for, or to discharge his contractual obligation as he had conceived it, might be a hard one. The somewhat exaggerated endeavours of the courts to find a fair solution to such cases is most interesting. One of the most popular techniques utilised by the courts for this purpose was “the implied term.”

As Sir Frederick Pollock has written, our courts formerly ” were averse to going beyond the strict letter of instruments, and would only in extreme cases imply terms that were not expressed or at least imported by some generally understood custom.” Parties, however, often enter into many well established types of contracts, such as contracts for he sale of goods, or for the sale or lease of land, or for the hire of goods, against a background of previous dealings between them, and of common trade usage, or of local custom, or of conveyancing practice. They take that background for granted and do not trouble to provide expressly for it in their contract. If disputes arise between them as to the exact nature or extent of their commitments under the contract, the courts have been ready to respond to counsels’ invitations to imply terms giving effect to the understood, but unexpressed, intention of the parties.

The doctrine of freedom of contract involves to main elements: 1) every person is free to enter into a contract with any other person they choose. 2) Every person is free to contract on any terms they want. The doctrine of freedom of contract is still recognised today, although it is often in conflict with commercial and legal reality. The ‘take it or leave it’ approach seems to have become the standard in this day and age with most contractual agreements. Also these agreements seem to be lacking the bargaining that was once seen a lot. Often, one party entering or involved in the contract is not exercising freedom of choice. Legislation has whittled away the freedom of contract and in some circumstances, the state has imposed the obligation to contract on citizens, such as compulsory third party injury insurance and workers’ compensation insurance. (Pentony, Graw, Lennard, Parker, p. 39)

The rise of the internet, mass production and international corporations clearly upset the guidelines set down by the doctrine. This essay will describe the contemporary market operations that conflict with the doctrine of freedom of contract. By evaluating its effectiveness in promoting its concepts, this essay will prove that the freedom of contract doctrine needs to be redesigned for the modern world. [6]

 6. Meaning of ‘Sanctity of contract[7]:

Sanctity of Contract is a general idea that once parties duly enter into a contract, they must honor their obligations under that contract. Whereas, efficient breach theory is that parties should feel free to breach a contract and pay damages, so long as this result is more economically efficient than performing under the contract.

There have some points what are necessary to make clear the idea of sanctity of contract. The points are given below:

1. Privacy of contracts: Part of the Sanctity of Contract is the natural right to privacy therein. One absolutely has a right to privacy in one’s agreements with others. One may waive this right to privacy, and one’s right to do so is absolute as well. The Right to Privacy of Contracts and Agreements is a fundamental individual right. Assert this Right for yourself! If, in your contracts you say nothing about private dispute resolution, or you say something like, “disputes will be resolved according to the laws of California,” then the bureaucrats can claim that you made them a party to the contract, that you’ve granted them jurisdiction, and therefore they can interfere with the contract.
2. Some Precedents: Some precedent regarding ‘Sanctity of contract’ are given below:

– The Famous Dartmouth College Case
Dartmouth College v. Woodward, 17 U.S. 518 (1819)[8]

This famous U.S. Supreme Court case, referred to as the “celebrated Dartmouth College Case,” is a leading case in the interpretation of the contract obligation clause of the U.S. Constitution, namely, Article I, Section 10, which states that “no state shall pass any law impairing the obligation of contracts.”

In 1769, before the American revolution, the British crown granted to the trustees of Dartmouth College in the province of New Hampshire, in New England, America, a charter, for the establishment of a college for the education of Indian and English youth in the province.

After the revolution, starting in 1816, the legislature of the state of New Hampshire passed a series of three acts to reorganize and convert Dartmouth College from an institution according to the will of the founders, to an institution that would be controlled by the will of the government. The trustees of Dartmouth College brought an action against a William Woodward for the return of property, such as books of records and corporate seal, belonging to the trustees that had been seized from them.

The State Court issued a conditional verdict, finding for the defendant, Woodward, if the acts of the legislature to reorganize the college were valid and not repugnant to the U.S. Constitution. Otherwise, it found for the plaintiff trustees. The court requested a ruling by the U. S. Supreme Court to clarify this issue. The opinion of the Supreme Court was delivered by John Marshall, Chief Justice:

“It requires no argument to prove that the circumstances of this case constitute a contract. An application is made to the British crown for a charter to create a college. The application states that large contributions of property will be conferred on the college on the condition that the charter is granted. This transaction carries every ingredient of a complete and legitimate contract.

The points for consideration are:

1. Is this contract protected by the Constitution of the United States?
2. Is this contract impaired by the acts of the New Hampshire legislature under which the defendant is holding property belonging to the trustees of the college?

1. If the granting of the charter by the British crown was in any way, politically or publicly connected to government, then the legislature of New Hampshire may act according to its own judgment in the administration of the college, unrestrained by any limitation imposed by the Constitution of the United States.”

But, if this is a private, charitable institution, which receives private property unrelated to government, whose funds are donated by individuals who have faith in the charter, where the donors have specified the disposition and management of their funds, then they have a right to insist that those arrangements shall be carried out.

Dartmouth College is a charity school, not a civil institution participating in the administration of government. Its trustees were originally named by the founders, and invested with the power of perpetuating themselves; the trustees are not public officers.

The Constitution is concerned and extends its protection to contracts, where the parties have a vested beneficial interest. This charter is a contract made of a valuable consideration. It is a contract for the security and disposition of property. It is a contract, on the faith of which real and personal estate has been conveyed to the college. It is, then, a contract within the letter of the Constitution, and also, within the spirit of the Constitution. The opinion of the court, after serious deliberation, is that this is a contract, the obligation of which cannot be impaired without violating the Constitution of the United States.

2. It is clear that all contracts, and right, respecting property, remained unchanged by the revolution. The obligations and the powers that were created by the charter to Dartmouth College, were the same in the new government as well as in the old. After the revolution, the Constitution of the United States has imposed this additional limitation, that the legislature of a state shall pass no act “impairing the obligation of contracts.”

The founders of the college contracted for the perpetual application of the funds which they gave. They contracted for a system which would forever retain the form of institution of learning which they had formed and in the hands of persons approved by themselves.

However, now the legislature of New Hampshire has totally changed the system, and the original charter of 1769 exists no longer. It has been reorganized by the legislature in such a manner as to convert a literary institution into a machinery entirely subservient to the will of government.

It results from this opinion, that the acts of the legislature of New Hampshire are repugnant to the Constitution of the United States, and that the judgment on this special verdict ought to have been for the plaintiffs, the trustees of Dartmouth College, and not for the defendant, Woodward. The judgment of the State Court must therefore be reversed.”

– How Franklin Roosevelt Stacked the Supreme Court to Try to “Eat Out the Substance” of the Law of the Land (Common Law)
Franklin D. Roosevelt (FDR), US President during much of the 1930s and 1940s, did vast damage in convincing large numbers of Americans that the Law of the Land (Common Law) no longer applied.

As part of the sell-out to private monopoly bankers, he convinced Congress to pass statutes saying that Americans must trust the promises of politicians and other bureaucrats about the honesty of their money. How? By having the statutes declare that most Americans couldn’t own gold.

FDR lied with the typical vile lying skill of a politician by saying that “uncooperative” Americans were “slackers.” The psychological manipulation thrust upon Americans was a highly skilled act of treason: make individuals who did not trust bureaucrats with the substance of their money (gold) feel like social outcasts and criminals, by branding them “slackers.” How clever! And how evil.

At that time (early 1930s), standard language in most contracts included what was commonly called the “Gold Clause.” This short number of paragraphs of typical contractual language allowed for monetary amounts to include an equivalent in both dollars and gold. This was a protection most private parties to contracts at the time insisted upon because they did not entrust the substance, or honest value, of their money to bureaucrats who wanted (and still want) money to be dishonest because it’s backed by nothing but the lies of politicians and bureaucrats.

FDR and his lackeys then said that the “Gold Clause” in most contracts was “illegal” because it was against “public policy.” Is there any mention of “public policy” in the Constitution? Does the Law of the Land (Common Law) contain anything about “public policy.” No, and no.

Many brave Americans challenged FDR in his bureaucratic grab for the power of the substance of money. The Supreme Court at that time saw through the charade and struck down FDR’s unconstitutional statutes as being totally against Article I, Section 10 of the Constitution: “No state shall pass any law impairing the obligation of contracts.” FDR lost – at first.

FDR, being the skilled manipulator that he was, then appointed to the Supreme Court new Justices sympathetic to his grab for power. He “packed the Supreme Court.” In fact, his treason went so far as to increase the number of Justices from 7 to 9 so he could be sure to quickly get enough appointees for a majority vote. Then, a couple of years later (mid 1930s) when challenges to FDR’s intrusions into the obligation of contracts were challenged in the conventional court system, the voiding of the private “Gold Clause” was upheld (unconstitutionally impaired) by FDR’s stacked court. Good, moral Justices remaining from before FDR such as Justice VanDeventer wrote sharp dissenting opinions in several cases warning about the precedent being set for further assaults on the Constitution. (For a detailed history and analysis of FDR’s war on gold and on the rights of contracts, we highly recommend The War on Gold by Anthony Sutton, published hard cover approximately 1976 by ’76 Press of Seal Beach, California.)

7. The Role of the Courts in Contract Affairs[9]:

By the mid-1800s, courts had established the fundamental principles that govern the formation, performance, and enforcement of the bargain contract. They created a complex system of universal rules that mirrored the propositions of classical contract theory. This system assumed that equal parties exist in the marketplace and that each party is competent to choose the terms upon which he is willing to be bound. The presumption of party competence led to the conclusion that courts were not to inquire into the fairness of contracts or contract content, but to exercise restraint and to enforce bargains as made. Their role was to act as “detached umpires or referees, doing no more than to see that the rules of the game were observed and refusing to intervene affirmatively to see that justice or anything of that sort was done.” But courts were not indifferent to the realities of contract practice. Common law doctrines granted the power to avoid contract obligations to minors as well as to those victimized by fraud, duress, and undue influence. These doctrines were narrowly defined and limited in number in order to avoid the adverse consequences that were believed to flow to the economic order from state regulation of private contracting. Except in extraordinary circumstances, courts avoided scrutiny of contract equities on the grounds that efforts to achieve justice in individual cases limited freedom of contract and fostered uncertainty that promises would be kept. Commercial life in this country could ill-afford a system of principles that restricted private autonomy and threatened efficiency in the exchange of goods and services.” Thus, the responsibility of the courts to protect those who were weak and vulnerable did not extend to parties who suffered hardships simply because they failed to protect themselves.

 8. The Role of Legislatures in Contract Affairs[10]:

During the nineteenth century, legislatures also assumed power to shape the institution of contract. They exercised this power in order to deal with market particularities and with “expedient, temporary, local, or specialized variations… Legislative change in the fundamentals of the common law was thus ‘in derogation’ of what was regarded as the main body of law; judge-made law was the norm, statutes the exceptions. Although legislatures had authority to create reasonable exceptions to common law rules “where it is conceived that public policy requires it,” they were no more inclined than the courts to restrict the exercise of freedom of contract. Prohibitions against lotteries, Sunday laws, and usury statutes made only limited inroads into the power of parties to conduct business in a manner and upon such terms as they might choose. By the late 1800s, the gap between classical theory’s vision of the marketplace and the realities of contract practice widened, exposing an economic order dominated by large and powerful corporations. “The darker side of their success – the shady dealings, the squalid slums spawned by factories, the cruel working conditions – frightened many people; and fueled unrest among workers. By the early 1900s, workers, “trampled to death beneath an iron heel, ‘had organized strikes in small towns and large cities, demanding higher wages, safer working conditions, and an eight-hour day. On numerous occasions, government officials, who were anxious to end the chaos, ordered state and federal troops to arrest, even fire upon, those who engaged in protests. The country was in plunged into an economic and social crisis that pitted the American worker against the industrial capitalist. As the crisis deepened, government action to address workers’ grievances and to restore order in the country became inevitable. Courts were virtually powerless to act. Common law rules, which rested upon nineteenth century radical individualism, were indifferent to abuses in bargaining power that did not rise to the level of fraud, duress, or undue influence. Moreover, the court “by law and by custom … lacked any authority to initiate action. It had no authority to stretch out its hand and gather in questions that urgently needed deciding. The court had to sit passively waiting for the cases to come.’ Legislatures, on the other hand, were not bound by a system of principles that discouraged examination of market realities. Moreover, they had assumed power to set their own agenda and to initiate action for the public good. By 1915, many state legislatures had chosen to exercise this power, enacting laws that regulate child labor and that set maximum hours and minimum wages for thousands of American workers. Legislative measures that established limits on the exercise of freedom of contract in the workplace marked a significant departure from classical contract propositions. These laws intruded directly into contract content, displacing the classical notion that parties, not government, are better suited to determine the wisdom and fairness of their bargains. The sanctity of the bargain contract had been deliberately violated in an effort to provide justice in the workplace. Legislatures had rejected the theory that championed minimal state action and redefined the contract relationship that exists between scores of American wage earners and their employers.

 9. Some reflections on the Doctrine of Freedom of Contract:[11]

As indicated above, the doctrine of freedom of contract was the central doctrine of the classical contract law that came to full development in the last half of the nineteenth century. The very idea of a general law of contract is part and parcel of the same positivist era. This law was the creation of judges and thesis writers influenced by social-contract ideas dating back to Locke, by classical economic thought and the associated ideology of voluntariness. Among legal theorists of the late nineteenth century, the law of contract was the archetypical branch of what was conceived of as legal ‘science’. This involved an attempt to systematise the various doctrines and decisions of the courts to do with contract issues into a consistent and logical theory in which the legal rules were to be deduced from general concepts such as property.

The classical view of contract involved a process of abstraction, generalisation and systemisation in an attempt to create a unitary theory that was thought to be free of moral valuations and could therefore be described appropriately as a science. This development formed part of the more general attempt to substitute scientific discourse for moral discourse at a time when the traditional religious underpinnings of moral values were coming under increasing attack with the decline in formal, traditional religious belief. There was, therefore, an attempt to distinguish between what was conceived of as public law and contract or private law—law that individuals legislated for themselves. This distinction between public and private law was part of the Enlightenment’s attempt to separate the public from the private realm in political and legal theory. Central to this conception of contract was the idea that contract obligations arose from the wills of the individuals concerned, and not as a result of a socially and historically constructed legal institution. It has much in common with the Lockean idea of property as a pre-social natural right. Indeed, the obligation to fulfil promises—central to classical contract law—was at its heart a Lockean natural law, but a natural law increasingly bereft of its metaphysical foundations.

In retrospect, this development could be seen as a process of reification—a manifestation of an excessively legalistic mentality in which legal rules and universal abstractions acquired sanctified status and became absolutes. What was also involved was an attempt to claim that the rule of law provided norms independently of politics. There is a close connection between this ideal of a rule of law and not of men and laissez-faire ideas. It was assumed that rules fixed and known beforehand would make it possible for economic actors to foresee how the courts would use their coercive powers and would allow those economic actors to plan their activities effectively. Hayek made much of these ideas in his defence of the market system. They involve an underlying assumption that predictability is associated with generality. It is also a view that conceives of courts as enforcers of rules rather than as settlers of disputes. This is a view that also conceives of judges as rulers on the truth—a view that encourages the adversarial approach of common-law courts. From this rule-based point of view, any movement away from the strict enforcement of rules towards multi-dimensional standards such as fairness is to be deplored. Herein lies the source of the conflict between equity as it had been developed in earlier times and classical contract law. The nineteenth-century desire for uniformity, certainty and predictability could not be reconciled with the discretionary element implicit in equity. Herein also lies the source of the reluctance to inquire too closely into the particularities of the subject matter of an agreement, the circumstances of its making, the expectations of the parties and especially of the outcomes realised. In practice, what came to be important in contracts was the written document as interpreted by the courts in a highly literalist manner, independent of any substantive inquiry of the parties (the parole evidence rule precluded such inquiry into the circumstances surrounding written contracts). All of this involved a commitment to a rigid and mechanical decision rule, to be implemented in a mechanical manner—a replica of the determinism of Newtonian physics.

This view of contract law has increasingly foundered on the evidence of experience. Too rigid an enforcement of contracts on the basis of freedom of contract led to what were recognised clearly as unjust outcomes. Legislatures and, over time, the courts themselves did not tolerate these. As a matter of practical politics, legislatures everywhere moved to legislate and regulate to remove the grosser abuses of the contract system. These measures have not been confined to simply addressing issues associated with contract formation but have been concerned increasingly with the substantive outcomes of contractual arrangements. Therefore, contract law came to be robbed systematically by legislatures of much of its subject matter. As a consequence, pure contract law has ceased to occupy so central a position in the economic system.

Among legal theorists, it was recognised increasingly that the refusal to inquire into the circumstances surrounding a contract was obviously inconsistent with the will theory on which classical contract theory rested. This in turn led to the replacement of the will theory with the development of the objective theory of contract—a theory that acknowledged openly that contracts were enforced for reasons of public policy. It has come to be recognised—particularly in the work of the theorists of the American realist school—that classical contract theory is neither neutral nor natural; it is instead a historically contingent social and legal construct

In consequence, the very idea of contract law as a neutral system has had to be abandoned. Rather, all valuations at law are moral choices. Contract law—and decisions in particular cases—involves a balancing of conflicting social values, not a deduction from consistent scientific principles. This realisation has posed an overwhelming challenge to deductive legal reasoning, as it is impossible to reason down from very general principles to particular decisions. Furthermore, this viewpoint leads directly to a good deal of scepticism about the practicality of general rules of the kind Hayek advocated. It also became clear that classical contract law conferred a privileged position on the status quo, the intelligent and the powerful.

Even the ideology of voluntariness has come under attack. The first point to be made in this regard is that methodological individualism in economic and moral theorising does not necessarily lead to any justification for a policy of self-reliance, however much the two are confused in practice. Secondly, it is obvious that individuals are frequently not the best judges of their own interests. In any event, individual interests are often subordinated to social and political goals, including in the law of contracts. It has been pointed out also that markets are to some extent coercive. Consequently, the problem is to decide what forms of coercion are to be regarded as legitimate.

The ideology of voluntariness has been seen to provide the more powerful party to a contract a freedom of manipulation and motivation, a freedom from any onus of articulation and a freedom from any other legal duties that cannot be fitted under the rubric of contract as promise. Consequently, there has been a growing reluctance to concede to big business the right to dictate contract terms to less powerful parties—particularly consumers—through standard-form contracts. Equally, there is a problem of deciding to what extent deception and concealment of information in contractual negotiations are also to be regarded as legitimate.

More generally, having acknowledged that contracts are enforced for reasons of public policy, and that contracts involve a balancing of conflicting value choices, the idea that contracts should always be enforced is open to question. This is what has happened as a result of legislative action and as a consequence of judicial enlargement of the law of contract and various equitable doctrines. Adding to the confusion has been the realisation that the grounds for equitable intervention in the enforcement of contracts cannot be fitted under a unified doctrine or theory. The law is not in fact static. Judges are required frequently to rule on novel situations requiring departure from precedent. In such cases, even perfect knowledge of precedent and other case law applying to the situation will not protect the subject of litigation. In these cases, the judge retrospectively rules certain conduct to be contrary to law—that law being the decision just made. In practice, one can conduct oneself in accordance with the law only to find out some time later that when a judge considers that conduct it is ruled to be contrary to the law. Only at that point does the conduct become, retrospectively, contrary to law. No degree of knowledge or foresight can prepare someone for a judgement such as this.

As Joseph Schumpeter pointed out, it is inevitable that the creative destruction inherent in capitalism will create new situations. The destructive and creative impulses of capitalism create novel situations requiring novel judicial treatments. If judges were not free to create novel legal pronouncements, commercial activity would move progressively beyond the influence of law. While precedent binds judges, if they were not free to rule creatively in novel situations the law would ossify.

Equity is always available as a remedy in a court of law, even though equity is distinct from law. Being governed by vague maxims rather than strict rules—and gifted with great flexibility with regard to remedies—equity has been criticised by many legal scholars and practising jurists as too unpredictable to be relied on to produce the proper result. Nonetheless, all lawyers within the common-law tradition are examined in equity during their training, and equitable arguments are always available to litigants. It is the reputation of equity as soft, vague and unpredictable that prevents it from occupying a similar place of renown as the law proper. Only a brave barrister will resort to an equitable argument in place of a legal one, despite vast quantities of case law recording successful equitable arguments.

All of these influences have led to a period of confusion in contract theory. Here in Australia there has been a growing acceptance of the objective theory of contract at the very time that theorists in the United States detect a process of doctrinal disintegration. There, it has been perceived increasingly that contract law—as modified by the various equitable doctrines—involves a complex of diffused principles. Even the idea of—and a need for—a general law of contracts as a uniform body of rules has been questioned.

Some theorists such as Gilmore predict the death of contract and its collapse into the law of torts. While it might be going too far to suggest that a uniform law of civil obligations might emerge, there is certainly an increasing recognition of an obligation of good faith and a development in the direction of a duty of care in contractual arrangements. The former is not as radical as some of its opponents might like to suggest. For example, the German civil code has had such an obligation for more than a century and a doctrine of good faith is now firmly entrenched in the US Uniform Commercial Code and in the Restatement of Contract. More generally, contract theorists such as Atiyah and Ian Macneil have questioned whether contracts should be seen as a legal mechanism for establishing long-term business relationships, rather than the risk-allocation mechanisms that economists have conceived them to be. This point of view emphasises the relational element involved in any commercial arrangement that is not a simple one-off exchange transaction. Atiyah, for example, sees contractual obligations arising primarily from the reliance one party places on another, while Macneil stresses the fact that all longer-term contracts are incomplete. It is simply not possible, in practice, to anticipate all the possible eventualities and risks involved in a continuing commercial relationship. Macneil sees the solution to this incompleteness as involving the development of intermediate contract norms to govern the continuing relationship. This is consistent with empirical evidence of real commercial behaviour, particularly between large companies where the existence of a valued long-term relationship induces companies to resolve difficulties that occur in the relationship without reference to the written agreements between them, and without reference to the courts.

 10. Conclusion:

Controversy over the wisdom of efforts to ensure fundamental fairness for individual contracting parties emerged in the late 1800s. It was fueled by the gap between classical contract theory’s vision of the institution of contract and the realities of the marketplace where strong parties took advantage of those who were vulnerable to unfair overreaching. Over the course of time, market injustices multiplied and demands for reforms in the law reached a fevered pitch. The debate among scholars intensified, but neither proponents of greater state action nor skeptics could prove the truth or falsity of their respective claims. Thus, the task of deciding what combination of freedom of contract and social control should govern contract conduct fell to the courts. Consensus that social duty must play only a minor role in establishing the limits of permissible contract behavior gave way to a bitter feud over the appropriate use of the implied covenant of good faith. The feud triggered an unexpected and comprehensive examination by the courts of the need for change in the fundamental propositions classical theory. After more than a decade of debate most courts have been persuaded that radical change is too uncertain in its benefits to warrant displacement of traditional contract principles and doctrines. With only rare exceptions, the debate among the courts over the scope of social duty has faded into the background. While judicial consensus fosters certainty and predictability in the rules that govern conduct in the marketplace, it does not provide an answer to the question of whether social controls benefit individual parties without imposing expense or injury upon others. Indeed, this question is as important today as it was more than a century ago. In the end, we must acknowledge that uncertainty is inevitable and that experimentation to end market evils is a matter over which there can be reasonable debate.

            Thus after the above discussion we came to know that the freedom of contract and sanctity of contract are the dominant ideologies. And parties are free to make their agreements with the interference the courts or parliament.

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