INTRODUCTION A. CONTRACT AND TORT

1. Basic forms of social coordination and cooperation. - The very concept of a society implies coordination and cooperation for common purposes. This coordination and cooperation may take various forms. It may be effectuated directly by public authority. In that event, decisions as to what shall be produced, how and by whom it shall be produced, and to whom it shall be allocated are made by public officials entrusted with social planning. Alternatively, social cooperation may come about indirectly when portions of the society's resources are at the command of private parties. Production and distribution of resources are then determined by a multitude of private plans.

Private or autonomous ordering of the use of resources presupposes rules or customs respecting a variety

of matters. There must be a determination in property law of which resources are to be privately held. In addition, rules or customs are required to govern (r) interferences by one individual with the private sphere of another and (2) voluntary transfers of resources from the private sphere of one individual to that of another. Rules of the first type govern relationships arising out of collisions between the private spheres of different parties. Obligations between the parties resulting from such collisions are ordinarily said to arise ex delicto. Rules of the second type permit the parties to enter into a planned relationship for the use of their separate resources. Obligations resulting from these relationships are ordinarily said to arise ex contractu. Absent rules defining such relationships, each individual's use of his resources would be autarkic, and private ordering could not effectuate economic coordination or cooperation. Regimes of private or autonomous ordering apply different rules depending upon whether an obligation falls into one or the other of these two categories - delict and contract - because planned relationships involving an element of autonomous ordering present different problems from those raised by unplanned relationships. The legal order must not only prevent each party from interfering with the other's private sphere but must also make it possible for the parties to cooperate, taking into account the economic and social effect of their decision as well as its moral and psychological significance for the parties themselves. 1

2. Convergence of tort and contract? - There is considerable contemporary discussion respecting the

possible convergence of contract and tort. Gilmore writes of a "basic coming together of contract and tort". 2 He sees tort historically as the "residual category of civil liability", 3 from which contract emerged in the COMMON LAW when assumpsit split off from the tort action of trespass on the case.4 Contract's independent existence depends upon the insistence that obligation does not arise in the absence of offer, acceptance, and consideration in the sense of "bargainedfor" detriment or benefit.5 With the emergence of quasi-contract and unjust enrichment theories and with the growth of promissory estoppel, Gilmore sees the COMMON LAW of contract "fast approaching the point where, to prevent unjust enrichment, any benefit received by a defendant must be paid for unless it was clearly meant as a gift; where any detriment reasonably incurred by a plaintiff in reliance on a defendant's assurances must be recompensed. When that point is reached," in Gilmore's opinion, "there is really no longer any viable distinction between liability in contract and liability in tort."6

Such predictions leave out of account significant differences in the roles of contract and delict. The law of

tort serves to delineate, as does the law of property, the domain of private right; tort is thus a precondition for a regime of private ordering. Contract builds on the basis thus provided, but its basic task is different - to facilitate private ordering and to deal with the problems that arise in the course of such ordering.

The argument for a confluence of tort and contract is strongest with respect to the general topic of liability. 7 Nevertheless, a crucial difference exists between the problem of liability as it arises in contemporary tort and contract law. With the exception of intentional torts, for which insurance is in principle unavailable, the person on whom the law of delict places a loss typically does not bear it definitively. The rise of mass markets, which made self-insurance feasible in many contexts, and of insurance permits large areas of tort law to assign liability on the assumption that the loss placement resulting from delictual rules is not definitive. To the extent that a loss-spreading mechanism is available to the party on whom a loss is placed, rules of tort law, in the last analysis, determine the particular loss-spreading mechanisms that are to be utilized for the problem area in question and the composition of the social or economic group that will ultimately bear the loss.

Contract law also assigns liability for loss to individuals. To the extent that the relevant rules are designed to effectuate agreements respecting obligations, their function and purpose necessarily differ from those of tort rules respecting responsibility. But, even where a contract rule does not build on party agreement, the problem of liability is viewed m a context that is significantly different from that of contemporary tort law. Tort rules today typically take into account the high probability, if not the certainty, that losses assigned in the first instance to individuals will be shifted to groups; contract rules must, on the other hand, be developed on the premise that typically the individual party will definitively bear all or a large part of any loss placed on him. This difference between the liability problem in contemporary tort and contract law is rooted in the tremendous diversity of the kinds and degrees of risk involved in contractual relations, a diversity which makes very difficult, if not impossible, the categorization required for insurance operations.

It follows that, in resolving questions of liability contemporary contract law must operate far more frequently

than does contemporary tort law on the premise that the party or parties to whom responsibility for a given loss is assigned will ultimately bear that loss. An approach to the problem of liability that premises the shifting of loss from the person initially liable to a group involves different considerations, and will frequently produce different solutions, than does an approach in which the initial assignment is typically definitive. A moment's reflection suggests that the contemporary law of negligence would be very different from what it is if defendants were not in most cases covered by insurance. Indeed, the rise of insurance has arguably sharp-ened differences between tort and contract and thus made the amalgamation of the two fields less feasible than was perhaps the case at an earlier period in their development.

The premise that a party will, by and large, ultimately bear the losses that the rules of contract law assign to

him is consistent with, and even to a degree required by, contract's role as an instrument of private ordering. Indeed, if substantially all the risks inherent in contracting could, through insurance or such forms of self-insurance as price adjustments, routinely be passed on by both parties to large social and economic groups, contract's social and economic raison d' ctre - the eliciting of individual judgment, energy, and creativity by permitting parties to deal for their own accounts and at their own risk - would be seriously undermined or even destroyed. Social and economic change may produce societies in which no significant economic role is played by self-reliant and individually responsible parties; until this occurs in a given society, contract law will survive as a distinct body of rule and principle.

3. Contexts in which contract and tort overlap. It is, of course, possible for issues of both tort and contract

law to arise from the same set of facts. For example, an accident involving a common carrier can give rise to claims based both on a contract of transportation and on principles of tort law. The question must thus be faced whether the victim of a tortious breach of contract can, at his option, recover under either a tort or a contract theory. This problem of concurrence or cumul receives varying treatment in different legal systems. As the topic is fully discussed in vol. XI on Torts, 8 it need not be considered here. A different, but related, question deserves brief discussion, however. How should a situation be characterized that can be viewed as presenting some delictual and some contractual traits but which does not fully satisfy the usual criteria for either delictual or contractual liability? In particular, how should one analyze situations where a planned relationship is actively contemplated but fails of fruition as e.g. where one party, with knowledge of the other, significantly changes his position during extended contract negotiations and, in consequence, suffers a considerable .loss when the negotiations ultimately break down? To the extent that the rules applicable to such situations are designed to facilitate autonomous ordering, they can be viewed as contractual in the sense that policies of contract law will be decisive. Conversely, to the extent that the rules applicable to such situations are designed to protect one party from being harmed by the representations of another, they can be viewed as delictual in the sense that the purpose of the law is not to facilitate autonomous ordering by the parties but to prevent one party from interfering with the other so as to cause him harm or loss. The rules governing such situations may, therefore, reflect both kinds of policies. One could thus say that a third or mixed form of obligation which is neither purely contractual nor purely delictual is involved.

Most commonly such situations have been treated as either contractual or delictual even though the results

reached do not reflect purely contractual or purely delictual policies. However, as various applications of the doctrine of culpa in contrahendo illustrate (infra ch. 9), the ambiguity of the underlying situation is often revealed by the use of rules that depart from those normally applicable in more standard cases of contract or delict.

The insistence encountered in some legal systems that such situations be governed exclusively by the law of delicts is due in part to a failure to distinguish doctrinally between obligations that are founded on a contract and obligations that are imposed to carry out policies of contract law. Although the position is disputed and its logical consequences are not always accepted, FRENCH writers assert that a contractual obligation can only arise from a contract.9 Similarly, the GERMAN Mommsen writes that "[i]n the nature of the matter one can speak of a contractual obligation only where the obligation rests on a contract, hence, only in the cases in which a contract in the legal sense is present."10 The considerations that have led particular legal systems to view these situations as delictual or contractual may be connected only marginally with the degree to which delictual and contractual purposes are, respectively, implicated. Inadequacies in the relief provided by some systems in delict have generated pressure to apply contractual rules (infra ch. 9). Conversely, fear of reducing the effectiveness of contract as a process of autonomous ordering has led other systems to insulate contractual rules and doctrines from views respecting risk-bearing and loss-spreading held in the field of delict. Presumably, less insistence on treating situations that implicate both contractual and delictual policies as either purely contractual or purely delictual would lead to greater willingness to use contractual and delictual rules flexibly and, at the same time, overcome the feeling that if one applies nonstandard rules to an atypical situation, one must apply them to typical situations as well. B. OUTER CONFINES OF CONTRACT

4. Contract defined. - Contract, cantrat, and Vertrag - to use the terms found in three modern European languages for the body of law considered in this volume - all suggest drawing together, agreeing upon, and entering into. The law of contract is concerned, in one way or another, with situations where these phenomena occur in some measure, that is to say, with situations where autonomous ordering occurs in some sense. As we leave this common core, however, the notion of contract varies from one legal order to another. In any given system, the precise limits of "contract" turn on established usage, which reflects considerations of convenience, and on particular cultural and historic experience. The concept can be defmed from various perspectives. The psychological and negotiating situations in which the parties to transactions find themselves may be emphasized or particular attention paid to economic and social typology and implicated socioeconomic policies. One of the many possible forms that defmition can take is seen in the strong tendency among WESTERN jurists to define contract as obligation that results from bargain (negotiation) and mutual assent. Defmition in these terms, which emphasizes the psychological and negotiating situation of the parties, is useful in many contexts but comes to grief in two situations: those where little or no negotiation is involved and those where the assent is not mutual. Transactions through standard forms prepared by one party and adhesion trans-actions are considered contracts even though the element of negotiation is nearly nonexistent. Assent has only an attenuated meaning where one party - usually a public utility or a public carrier is under a duty to transact on terms imposed by law or by a regulatory agency. II In contemporary law it is also often illegal for a party to refuse to contract because of certain personal characteristics, such as the race or sex, of the other party. Furthermore, obligations that are viewed as contractual result where one is bound by another's reasonable - though incorrect - interpretation of his intentions. A promise that can affect the behavior of another may be analyzed in contractual terms even if the promisee has not negotiated or bargained. And SOCIALIST jurists consider transactions to be contracts in which both parties must engage themselves on terms fixed to a significant degree, but not completely, in advance by planning authorities.

Arguably, the characteristics common to these several situations are not sufficient to bind together

phenomena that appear so diverse from some perspectives. The common thread that runs through all these "contractual" situations is the existence of a significant, though greatly varying, degree of legally sanctioned autonomous ordering on at least one party's part. 5. Public law contracts. - The phenomena of drawing together, agreeing upon, and entering into - suggested by "contract" - do not occur exclusively in situations in which both parties are persons of the private law. An individual or a corporation can contract with the state or with a public authority. And two states or two public authorities can themselves contract. To the extent that a significant degree of autonomous ordering exists on at least one party's part, the transaction can be considered contractual, in the broad sense of that term. Of course, as the general position and situation of at least one party to such a contract are significantly different from the general position and situation of private law parties, various of the rules applicable to public law contracts differ significantly from the rules applicable to analogous private law contracts. And, in certain

situations, the question is posed whether the rules of private law or of public law contract should apply to a transaction in which one party is a public law person. 12

Transactions to which public law rules apply are not by that token to be considered as outside the domain

of contract, broadly conceived. However, although contractual in the sense that a significant element of autonomous ordering is present, such transactions are in many respects regulated by special rules. Some of these rules are discussed infra in ch. 4 on Public Contracts. Otherwise, this volume deals almost exclusively with the rules found in the private law of contract.

6. Unilateral actsI3 and contract. - Unilateral acts constitute a form of autonomous ordering that initially

involves only one party; they can thus be viewed as "self ordering" acts. The question arises whether such acts are to be enforced without regard to whether reliance by the other party occurred or was at least possible. Is an offer or bound by his firm offer before the offer has come to the offeree's attention? should a promise of reward be enforceable where the plaintiff did not know of its existence when he acted ?I4 Doctri-nally, strictly unilateral acts can either be assimilated to contract or treated as a separate legal institution. The practical issue of enforceability does not, in the last analysis, depend on the doctrinal construction used but on whether one is prepared to attach legal obligation to a promise, made by a person who seriously intends to bind himself, if the promisee had no knowledge of the promise during the period when the legal obligation would attach. The SCANDINAVIAN Lofte theory, which was much discussed during the early years of this century, analyzes several problems in terms that raise the question whether the theory rests on a unilateral act analysis. The theory emphasizes the binding effect of a promise; thus the irrevocable quality of a firm offer flows from the promise to hold the proposition open. However, all the con sequences that this proposition entails are not accepted; the fIrm offer can be withdrawn so long as the offeree is not aware of it.16 Accordingly, the Lofte theory does not rest obligation on the unilateral act (the promise) alone, but on the promise plus the possibility of reliance.

In some systems, certain strictly unilateral acts are considered contracts and, as such, are recognized as a

source of contractual obligation. The COMMON LAW, although in this respect much modified by statute in most of the states of the UNITED STATES,r7 attaches "contractual" obligation to unilateral acts under seal in situations where the promisee could not have relied on the promise. Restatement of Contracts 2d (1979) § 9518 thus provides that

"a promise is binding without consideration if (a) it is in writing and sealed; and (b) the document containing

the promise is delivered; and (c) the promisor and promisee are named in the document or so described as to be capable of identification when it is delivered."

Section 104 (I) makes it clear that no participation by the other party is required in order for the obligation to

arise. "Neither acceptance by the promisee nor knowledge by him of the existence of a promise is essential to the

formation of a contract by the delivery of a written promise which is binding without consideration." Of course, the promisee remains free to render the promise "inoperative by disclaimer".19 A promise under

seal is thus considered a contract even in the strictly unilateral situation where the written promise is not delivered to the promisee and he has no knowledge of its existence.

ENGLISH law also accords binding effect to a delivered promise under seal, but some writers have raised the question whether the resulting obligation is properly considered contractual. The objection is that

"[t]he idea of bargain, fundamental to the English conception of contract, is absent. So far, indeed, is ... [the]

liability removed from the normal notion of agreement that it has even been held that a deed may create a legal duty in favour of a beneficiary who is unaware of its existence. The affinity of the deed is with gift, not with bargain, and it is fair to say that the so-called 'contract under seal' has little in common with agreement save its name and its history. 20

To the extent that this analysis is accepted, ENGLISH law draws a doctrinal distinction between strictly

unilateral acts and contract but the distinction does not imply that the former are unenforceable.

FRENCH and GERMAN law tend to distinguish clearly between strictly unilateral acts and contract and thereby express the proposition that the former are, in principle, unenforceable. GERMAN CC § 305 provides that "for the creation of an obligation by a juristic act, and for any alteration in the substance of an obligation, a contract (Vertrag) between the parties is necessary, unless otherwise provided by law." Although a comparable provision does not appear in the FRENCH Civil Code, FRENCH theory rejects the unilateral act as a source, in principle, onegal obligation.21 Furthermore, any obligation that does attach to a unilateral act is said to be noncontractual in nature.

"[T]he unilateral obligation, even though it is, like a contractual obligation, a voluntarily assumed obligation,

is, however, not a contract. General principles would, therefore, result in applying to this source of obligation the rules of delictual and quasi-delictual liability, which represent the generally applicable rules (constituent Ie droit commun), and not the rules of contract law which require special circumstances before they apply (sont des regles exceptionnelles)."22

7. should strictly unilateral acts be enforceable? The basic significance of any discussion whether a strictly unilateral act is to be considered a contract relates to whether such acts should be enforced on the ground that they represent selfimposed obligations expressed by a promise. Such acts can, of course, be enforced without entailing the consequence that they must be considered contracts. However, in view of the act's affmity through promise to contract, the doctrinal distinction would probably be hard to maintain where a system's contractual theory emphasizes promise. To the extent that the binding force of contracts is explained in terms of the "natural right of every human being to obligate himself";3 no clear-cut basis exists for refusing binding effects to the "self ordering" represented by strictly unilateral forms of autonomous ordering. On the other hand, neither the psychological explanation (infra s. 24) nor explanations from social, eco nomic, and institutional perspectives (infra s. 2528) at least as applied to onerous transactions support giving legal sanction to strictly unilateral acts. In particular, where onerous (broadly speaking, economically motivated) transactions are in question, a unilateral act must involve at least the possibility of reliance by another before a ground is made out for according legal sanction.24 As soon as reliance is possible, however, the act is no longer strictly unilateral; the situation involves more than "self ordering" as now two or more parties participate to some degree in the autonomous ordering, and the psychological explanation as well as explanations from social, economic, and institutional perspectives for the enforceability of contracts support, at least in some measure, attaching sanctions. Recognizing legal obligation in such situations thus does not require explanation in terms of a unilateral act theory of obligation or of a theory of contract based on the proposition that promises are, in their very nature, obligatory; where binding effects are considered appropriate, they can be justified in general contractual terms either by finding implicit agreement on the part of the person to whom the promise is directed2S or by enforcing the promise where the promisee has reasonably relied.26 A generalized unilateral act theory of obligation is, therefore, attractive only where these two possibilities are ignored or rejected.27 In the context of non-onerous transactions (infra s. 29), some of the arguments that can be advanced for enforcing autonomous ordering involving the participation of two or more parties apply as well to strictly unilateral ordering. For example, where a promise, once communicated to the promisee, would be enforced to facilitate intra family arrangements such as providing for the support of a handicapped child, there is no clear basis in policy for refusing enforcement to the uncommunicated promise, made in full awareness by a promisor who intends to bind himself. At least in such circumstances, the COMMON LAW properly enforces a strictly unilateral promise under seal;28 whether the resulting obligation is viewed as contractual or as analogous to a contract would seem a mere doctrinal nicety. 29

C. SCOPE OF THIS VOLUME

8. Contents. - This volume is concerned with the institution of contract in its social, economic, and legal aspects. Chapters 2 through 4 take a broad view of the subject, considering the analogues in precommercial societies to contract, the intellectual and sociological bases of the institution of contract as it emerged in WESTERN EUROPE, various changes that the classical concept of contract is undergoing in contemporary Western industrialized societies, and the general topic of public contracts. Chapters 5 through 8 consider the institution of contract in societies whose economic, political, social or religious views and traditions are in some significant sense different from those that have shaped the notion of contract for societies, such as WESTERN EUROPE and the UNITED STATES, which are today the principal heirs of liberal and utilitarian views respecting man and his society. Discussion begins with SOCIALIST societies; their efforts to plan economic life - in particular, production and distribution - in a deliberate and coordinated manner have significantly and variously affected the institution of contract. We next consider

traditional CHINA and JAPAN - with a glance at contemporary JAPAN - where views respecting dispute resolution significantly different from those held in the WEST have important implications for the institution of contract. MUSLIM societies present still another variation an explicitly religious basis for legal rules and principles - in the complex of influences surrounding and affecting contract.

Intertwined with the general problem of social and cultural influences on contract as seen in traditional

CIDNA and JAPAN and in MUSLIM societies is the related question of what occurs in the realm of law - and, more particularly, of contract - as the traditional bases of society weaken and cultural ideas that are not indigenous begin to affect human aspirations and attitudes. The discussions of contract law in contemporary JAPAN and in the contemporary MIDDLE EAST touch on this theme; it is central to ch. 8 on Contract in Developing Societies.

Chapters 9 through 16 are primarily concerned with the intellectual apparatus that is utilized by various

legal systems to analyze and order what are functionally or operationally contractual transactions. (Chapter 14 on Contracting Through Others: Agency, considers a subject matter that is often handled separately from the law of contract. In the aspects discussed, the topic is, however, sufficiently related to contractual problems and policies to justify treatment in this volume of the Encyclopedia.) These chapters focus discussion on contract rule and doctrine as these have been developed and are applied in the CIVIL LAW, with its antecedents in ROMAN law, of such WESTERN EUROPEAN countries as FRANCE and WEST GERMANY and in the COMMON LAW which originated in medieval ENGLAND and was carried to many former BRITISH colonies, including AUSTRALIA, CANADA, and the UNITED STATES OF AMERICA. Attention is also given, in varying degrees, to contract in other legal systems, especially the SOCIALIST systems. Chapter 17 reflects in comparative terms on some general aspects of contract law as presented in the foregoing chapters.

9. Matters not treated in this volume. - Various more specialized aspects of the general field of contract law

are taken up in vol. VIII on Specific Contracts, and vol. IX on Commercial Transactions and Institutions. Vol. XII on Law of Transport, deals with a subject which has been of considerable importance for the development of contract law. General subject matters that have an incidental or tangential relation to contract are handled in the Encyclopedia volumes devoted to other areas of law. Quasi-Contracts are treated in vol. X. Vol. VI on Property and Trust and vol. XIII on Business and Private Organizations, consider wholly executed transactions, such as conveyances of immovable property, transfers of movable property, trusts, and corporate charters, which are occasionally called "contracts" and often grow out of, or involve connected, contractual arrangements. Vol. XV 'on Labour Law, deals, inter alia, with the contractual aspects of individual labor contracts. D. OUTLINE OF THIS CHAPTER

10. The present chapter seeks to provide a general background and, to some extent, an analytical framework for the chapters that follow. With this purpose in view, a wide range of topics is discussed.

The first of these is the extent to which various methods of ordering economic activity - in particular, ways of

eliciting and disciplining production and distribution decisions - imply recourse to the legal institution of contract (subch. II). The implications for contract law of certain methods of economic ordering are considered and general limits to the use of contract discussed. Various explanations advanced for the legal enforceability of contracts, particularly in CIVIL and COMMON LAW discussions, are then reviewed. Attention is given here both to the explanatory power of various theories and to the extent to which they are tied to particular social and economic orders. The discussion of this and other problems treated in this chapter is somewhat sparse for SOCIALIST legal orders; their general characteristics are considered in considerable detail in ch. 5 on Contract in the Socialist Economy.

The limits that the legal order sets to the use of contract are next considered (subch. III and IV). Discussion

begins with situations in which ordering through contract is discouraged or prohibited. The problem of abstractness, related in part to the foregoing, is then surveyed. Contractual justice, especially in its substantive aspects, is next discussed in quite general terms. In later chapters, especially ch. I I on Defects in the Contracting Process, and ch. 12 on Standardized Contracts and General Conditions, various aspects of this broad subject are considered at greater length.

The chapter concludes with a general view of the institution of contract in terms of rules and doctrines that

determine the principal courses of action open to an aggrieved party and define, from the perspective of sanction, contract's legal consequences (subch. V). Here particular consideration is given to the relationship between these matters and the explanations advanced for the enforcement of contract. A. METHODS OF SOCIAL AND ECONOMIC ORDERING AND RECOURSE TO CONTRACT

II. Plan and contract. - The coordination and cooperation for common purposes that every society requires take two basic forms in the contemporary world: plan and contract. No society relies on one of these forms exclusively; however, the extent and manner of reliance on each form can vary significantly from one society to another. Contract seeks to secure "cooperation to achieve social purposes by the use of promises given in exchanges arrived at through bargain.."30 Reciprocity is the basic organizing principle. Subject to the rules and procedures established by the legal order, individuals and legal entities make, for their own accounts and on their own responsibility, significant decisions regarding resource utilization and allocation.31

Planning, on the other hand, places responsibility for such decisions largely in one or a few agencies of

society. Central planning authorities regulate large areas of life in a comprehensive and obligatory manner. "[O]rganization is by common aims (or by the aims that in the mind of the 'policymaker' ought to be common)."3Z Cooperation for social purposes is in terms of the plan; the natural persons and legal entities di-rectly involved in production and distribution do not, in principle, make significant decisions regarding resource utilization and allocation.

12. Contemporary dominance of contract and plan. In the contemporary world, the dominant methods of

ordering, especially insofar as production and distribution decisions are concerned, are clearly contract and plan. Nowhere are these forms of ordering regarded as mutually exclusive. Quite the contrary is true; the emphasis is on achieving the optimal balance in practice between the two principles.33

Recent decades have seen for many societies the relative importance of contract significantly decline in

three senses: the economic importance or role of contract as an institution has diminished; society has come to attach less importance to free choice as a source of legal rights and liabilities and to attach increased importance to nonvoluntary rights and duties; the contractual paradigm is no longer completely dominated by the executory transaction and contract is less effective as an instrument for the calculated allocation of risks.34 On the other hand, in societies that earlier in this century were very heavily committed to the planning principle, the relative importance of contract, at least in the first two of these senses, appears to have increased.35 This is not to say, of course, that significant ordering cannot occur without the use of either contract or plan. Two other forms of ordering can be noted: ordering through a planning process or by private agreement to which no legal sanction attaches and ordering regulating behavior without recourse either to a planning process or to private agreement. The first of these forms has affinities to contract; the second can be seen as sharing some characteristics with plan. Examples of the first include unsanctioned plans, such as voluntary wage and price controls or voluntary limits on private use of energy, and "contracts" without sanctions between businessmen.36 The second is illustrated by "ethical" and "religious" rules that, in the society's view, did not originate in, and cannot be changed by, conscious planning or private agreement. Aspects of family life, rooted in long custom, that the parties themselves do not feel free to change furnish another example.

Status37 and various manifestations of social pressure, ethical principle, commercial morality, and religious

feeling thus have considerable importance for areas of life that can fall within the purview of contract and plan. They thus supplement and, on occasion, replace ordering through contract and plan. Indeed, forms of social ordering that are not sanctioned legally maintain themselves and operate effectively even where they are inconsistent with the legalities of a situation. A legally defective arbitral award is not challenged by a merchant because to do so would be "incompatible with honor and with the need for trust among businessmen".3 8 The very nature of certain areas of life, e.g. aspects of family relations, may also be such as to make ordering through contract or plan partially or wholly unfeasible. Ethical and religious rules and norms, in some of their applications, perform functions that might be discharged by legal mechanisms were they less expensive and cumbersome.

Furthermore, when reflecting on the role of contract and plan, one should bear in mind that their importance

is not to be measured simply by the extent to which one or the other explicitly controls a given situation. Where parties rely on non legal sanctions to enforce an agreement, contract or plan may have played a role

in shaping the underlying transaction. Both contract and plan contribute to the rationalization and ordering of economic relations even where they are not directly operative in a legal sense. Thus in societies that rely heavily on contract for economic coordination and cooperation, contract law influences subtly and importantly expectations and notions of proper conduct even where the parties do not desire to attach legal sanction to their transaction. When business organizations" successfully operate exchange relationships with relatively ... little attention to detailed planning or to legal sanctions" ,39 they depend to a significant degree upon shared assumptions that have in considerable measure been shaped by, and expressed in, the law of contracts.

Although the economic and social significance of contract law and doctrine thus extend beyond contexts

that can be characterized as fully contractual, those transactions that reach the courts tend to represent situations in which formal legal sanctions assume particular importance. As attention is thus particularly drawn to such cases, the rules and doctrines of contract law doubtless reflect more closely the needs and problems there encountered than those arising in contexts where affairs are conducted with less reliance upon legal sanctioning. The situations in which parties tend to rely on sanctioned contractual ordering include transactions involving a high degree of risk, those where relatively complicated patterns of rights and duties designed to regulate the relationship for a substantial period of time are being created, where the requirements of one or both parties' organizations are served by a fairly stable and comprehensive regulation of the transaction, and where the economic relationship in question is essentially a one-shot affair as, e.g. the purchase of a house.

13. Advantages and disadvantages of contract and plan, respectively. - Plan and contract can each be said

to have certain advantages as methods of social and economic ordering not possessed by the other. The fundamental advantage of the planning process is that it permits those in charge of a society to achieve social purposes directly. Purposes can be pursued even though they do not happen to coincide with the particular interests of private individuals. Moreover, means can be used that are tailored to obtain the desired result rather than means that are indirect and may not achieve the result without at the same time diverting resources to the achievement of other and less desirable results.

The fundamental advantage of contract is that it stimulates the initiative and prudence of those entrusted

with decision making. It does this by allowing the person who makes a decision to reap the benefits or suffer the harm that results from that decision thus giving the decision-maker a direct stake in the outcome. Moreover, because decisions are made by those who will be principally affected by them, there is a greater likelihood that the decisions will correspond to the desires of the individuals whom the decisions are supposed to benefit. Particularly in a complex society in which the needs and wants of the citizens are heterogeneous, there is a danger that decisions made for citizens by central planning officials may reflect ideas of planners rather than the citizens' priorities. Contract, moreover, takes advantage of the information available to private citizens; information that is by its nature decentralized and relatively unavailable to planners.

In addition to these advantages and disadvantages which concern the allocation of resources, there are

others which concern the allocation of political power. To the extent that a society relies upon planning, it places its citizens' economic interests in the hands of planners who, depending upon the political system, decide to a greater or lesser degree without regard to the citizens' wishes. To the extent that a society relies upon contract it allows the private decisions of some - particularly persons with considerable property or initiative - to carry greater weight than the decisions of others - those with less property or initiative - in determining how resources shall be allocated. Extensive reliance on planning necessarily centralizes power and carries with it the risk that the planners' decisions respecting the appropriate role for planning will be unduly influenced by a desire to maintain or increase this centralization. Extensive reliance on contract creates the danger that economically more powerful or more skilled private interests will use their power and skill to create still more economic power by inducing others to enter into bargains that are one-sided at least in the sense that the "gains from trade"40 will largely or entirely flow to the more powerful or more skillful party. To the extent that the resulting situation is considered undesirable it can, in principle, be largely corrected by income taxes and welfare payments.

14. Integration of contract and plan. - In the contemporary world contract and plan are, as has already been

remarked (supra s. 12), the processes through which production and distribution decisions are, for the most part, ordered. These two methods of ordering do not operate in entirely distinct and separate spheres. Interactions frequently occur; planning sets limits and gives direction to contracting and, in given circum-

stances, contracting is essential to ordering through plan. Because contract and plan have each advantages and disadvantages as methods of social and economic

ordering not possessed by the other (supra s. 13), the question arises whether the two processes cannot be integrated in such a fashion as to maximize their advantages and minimize their disadvantages. The assignment to contract of a significant role in the overall process of economic ordering by societies that prefer the planning principle to the principle of private autonomy (infra s. 16) can be seen in this light Societies that are not fully committed to the planning principle may also seek a partial integration of that principle with the principle of private autonomy. Contemporary FRENCH planning, for example, relies in part on regulatory and fiscal measures established by legislation and administrative decree.4' These traditional means are supplemented by "[c]ontrats de stabilitl, confrats de programme, contrats de progres, contrats fiscaux, [et] contrats d' execution du Plan..." 43 These arrangements make possible "administration by contractual means, done by negotiations and by agreements concluded between the public authority and the administre ..."44 The aim of this integration of the principles of planning and of private autonomy is to find "a point of equilibrium between an oppressive (contraignant) unilateral ordering and an anarchic laissez-faire."4s

Because the "contrats" that result from such a regime of integration are induced by fiscal and regulatory

incentives and directives, it is generally agreed that they are not contracts in the usual sense of the term.46 If efforts to integrate plan and contract prove feasible and prosper in societies that still adhere in significant measure to the principle of private autonomy, the rules that are developed to regulate the resulting institutions will presumably be decidedly different from those of traditional contract law.47

15. The anatomy of ordering. - The kind of ordering that occurs depends upon the person making

decisions, their subject matter, and, where the ordering is not done by those directly affected, the effect these decisions are designed to have.

The persons making the decisions in question may be the individuals or collectivities that the decisions will

affect, either by imposing duties for which the individual or collectivity will be legally responsible or by putting them in control oflegal rights. Alternatively, ordering may occur through decisions made by those in charge of a larger group or community to which the directly affected individuals or groups belong. From the point of view of those immediately affected, decisions of the fl[St type are autonomous; those of the second type are non-autonomous.

The subject matter of the decisions may be the actual content of the rights and duties created. Alternatively,

the decisions may concern the procedure or framework within which other decisions are to be made. In the former case, the decision may be termed substantive; in the latter, it may be termed procedural.

A non-autonomous decision may specify that human affairs be conducted in a particular way. In the law of

contract, such decisions are sometimes made to further social objectives that go beyond the efficient and fair ordering of the interests of the contracting parties. For example, sellers of insurance might be required to extend the policy's coverage to anyone driving the insured's car because society wishes to protect third parties against uninsured motorists. Ordinarily, however, non-autonomous decisions are designed to protect the interests of the contracting parties and ensure that the contract is fair. Alternatively, non-autonomous decisions may seek to facilitate the making of other decisions, either autonomous or non-autonomous, about the conduct of human affairs.

These non-autonomous substantive and procedural decisions may be either mandatory (jus cogens) or

optional (jus dispositivum). An example of a mandatory substantive decision would be that certain goods should be produced or allocated to a particular individual. An optional substantive decision occurs, inter alia, when provisions are set out to [ill in concrete details required to carry out other decisions in which the decision-maker failed to specify certain significant points. A mandatory procedural decision can be illustrated by a rule that certain procedures must be followed if certain other decisions are to be recognized by the law. An example of an optional procedural decision would be a rule authorizing decision-makers to follow a given simplified procedure to facilitate the making 0f their own decisions. 16. The principles of private autonomy and planning significance for contract. - The view that the substantive decisions which govern the production and distribution of goods and services should, to the extent feasible, be autonomous (or decentralized) may be denominated the principle of private autonomy. The contrasting view that such decisions should be non-autonomous (or centralized) and mandatory, unless transaction costs

or some other particular barrier stands in the way, may be termed the planning principle. 48 Each principle has its advantages and defects; at least in relatively complex societies, exclusive reliance on either is not encountered.

A law of contract constructed entirely on the basis of the principle of private autonomy would give great

attention, through non-autonomous, mandatory procedural decisions, to ensuring that the contracting process was responsive to the autonomous, substantive decisions of both the parties.

". .. Careful protection... [will be] constructed against every influencing of the party's will; imbalance between performance and counterperformance ... [will be] combatted when, but only when, it was obtained through exploitation of a situation of dire necessity (Notlage), of inexperience, or of indiscretion (Leichtsinn) .. ."49

In such a system, substantive decisions are left, where possible, to the parties, on the premise that, so long

as the integrity of the contracting process is assured, its results, in the overwhelming majority of cases, will be socially acceptable. Problems that arise because of the parties' failure or inability to foresee difficulties are dealt with by non-autonomous, optional substantive decisions. These decisions take the form of rules expressly allocating the risk of mistake or of a change in circumstances; risk allocations are also implicit in specific contractual regimes. Thus certain risks are assumed when a contract of sale or a lease is concluded; a buyer who intends to resell the purchased object is taken to bear the risk that resale may not occur. Since these decisions are designed to have a purely auxiliary role, they yield to an explicit allocation of risks and burdens by the decision of the parties. Strict adherence to the planning principle, on the other hand, would deprive contract of nearly all importance. The resulting system might still speak of "contracts" in connection with [mancial accounting and administrative control. Expressing planned distribution and production decisions in such "contracts" can serve as a method of accounting, identifying the costs allocable to each productive activity and, perhaps, matching these costs with the revenues or benefits obtained so as to determine the extent to which social resources should be committed to one activity rather than another. The planned division and allocation of responsibility for the use of resources would be exemplified in these documents and they would provide a mechanism for obtaining tentative commitments for the future use of these resources as an aid to planning. However, in and of itself, the process described is not contractual in the usual sense of the term; it is not expected to provide correct decisions concerning the allocation and use of resources, and every unplanned decision embodied in the "contract" is, in principle, subject to review and correction. B. BASIC VARIETIES OF ORDERING THROUGH CONTRACT

17. Introduction. - Certain basic classifications are useful in an analysis of ordering through contract. More than one of the classifications in question may apply to any given transaction or group of transactions. The classifications in question are dyadic: (I) onerous and gratuitous (donatiye) transactions; (2) one-sided and twosided autonomous ordering; (3) individualized and standardized transactions. 18. Onerous and gratuitous (donative) transactions.Onerous transactions are taken to be commutative in nature; their fundamental purpose is not to alter the distribution of wealth but to vary each party's bundle of resources or rights so as to improve both parties' position. In donative transactions, the opposite is normally the case: they are designed to change the distribution of resources or rights among individuals rather than the form in which the resources or rights are held. 19. One-sided and two-sided ordering. - All contractual ordering involves an element of choice; the decision whether to enter into the transaction must, at the minimum, rest with the parties. However, a distinction is to be drawn between situations, on the one hand, in which the process through which the terms of the transaction were established was inherently nonreciprocal and those, on the other, in which the terms were established through an essentially reciprocal process. The fIrst group of situations constitutes onesided ordering; the second, two-sided ordering. Two-sided ordering occurs, it should be noted, not only where the parties have vigorously negotiated but also where the price and other terms were established by the play of free market forces. In the latter case, two-sided ordering is present even though the parties do business on a take-it-or-Ieave-it basis without any dickering over terms. A more marginal case of two-sided ordering is present where one party offers to sell a unique object - e.g. a Rembrandt painting - on specified terms but refuses categorically to bargain. As dickering is excluded and the

price and other terms are not negotiable, certain of the traits associated with one-sided ordering are clearly present. On the other hand, there is no inherent reason for sellers of valuable art objects in general to refuse to negotiate. In this respect, the psychological position of the potential buyer is significantly different from that of the consumer who buys an automobile on terms established by the manufacturer's standard form contract. On the basis of this difference, the first transaction can be said to involve two-sided ordering even though, in the particular situation, no dickering occurred, while the second is seen as an example of onesided ordering. The traditional view, upon which much of contract law was based, assumed that contracts typically resulted from a two-sided process. However, in the contemporary world, contracts resulting from a one-sided process of ordering have become frequent and have great economic and social importance.50

The first to draw a general distinction between one- and two-sided ordering for purposes of contemporary

contract law was probably the FRENCH scholar Saleilles:

"Without doubt, there are contracts and contracts; we are far from the reality of the unity of contractual types that the law assumes. Sooner or later, the law will have to take into account the nuances and the divergences that social relations have caused to arise. There are pretended contracts which have nothing of contract except the name and whose juristic construction has yet to be made... [O]ne could, lacking a better expression, call them contracts of adhesion, in which there is an exclusive predominance of a single will, acting unilaterally, which gives its law, no longer to an individual but to an indeterminate collectivity, and which has already engaged itself in advance, subject only to the adherence of those who would accept the law of the contract and avail themselves of the engagement already created [by the declaring party]. This is the case of all the labor contracts in large industries, contracts of transportation with railroads, and of all those contracts which present the characteristics of a law of general application (10i collective), and which, as the Romans already remarked, are much closer to a Lex than to an agreement of wills (accord des V010Iltes)."SI

20. Individualized and standardized transactions. Contract terms can be drafted for the individual transaction or for a class or type of transaction. Standardized transactions are not strictly a contemporary phenomenon. Such contracts frequently appear in medieval notaries' handbooks;52 they were used in the twelfth and thirteenth centuries in the transportation of pilgrims to the Holy Land.s3 Most often, individualized terms are associated with two-sided ordering and standardized terms with one-sided ordering,s4 but they need not be. In particular, standardized contracts may result from two-sided ordering between e.g. a large manufacturer and an association of suppliers or between associations representing, respectively, landlords and tenants. Likewise, individualized terms can result from one-sided ordering.

C. EXPLANATIONS ADVANCED FOR THE LE GAL ENFORCEABILITY OF CONTRACTS 21. Introduction. - Contract involves individual choice and is, as well, a vehicle for achieving coordination and cooperation in society; accordingly, the institution can be justified in terms of the individual as a moral and spiritual entity and in terms of social and economic life. Doubtless these two perspectives are ultimately but two aspects of a single reality. Views respecting the individual's moral and spiritual value have a clear relation to theories of social and economic organization. Conversely, different forms of social and economic organizations imply views as to the requirements and possibilities of the indi-vidual's moral and spiritual existence.

Despite this underlying unity, there has been a strong tendency to explain the acceptance of contract as an

institution in ways that approach the question either from the perspective of the individual party or from the perspective of society. This dichotomy between individual and society runs through much of Western philo-sophical and political thinking; contractual theory is quite naturally influenced by more general philosophical movements. Perhaps the basic importance of autonomous ordering to contract and the feasibility of analyzing many discrete contractual problems in terms of will and intention predispose contractual thinking to give even greater emphasis to the individual than does the particular epoch's philosophy generally.

In the nineteenth and early twentieth centuries, both adherents of the principle of private autonomy and adherents of the planning principle commonly explained the enforcement of contracts from the perspective of the individual parties in terms of a will theory.55 Contracts were thought to result from the orders or commands by which individuals regulated their own affairs. Liberals approved of such regulation as an exercise of individual freedom. Socialists condenmed it as a sacrifice of public to private interests. But both of them were viewing contract in somewhat the same way. It was a long time before SOCIALIST countries which

fully embraced the planning principle decided that contract law was not merely a relic of capitalism but could be an instrument for performing social functions necessary to a socialist society.56 Although these earlier explanations of the enforceability of contracts from the perspective of the parties have largely been supplemented and, to a degree, even replaced by newer explanations that emphasize social and economic perspectives,57 they continue to exercise a great and often unrecognized influence on our thinking.

Speaking very generally and abstractly, the enforceability of contracts can be said to rest on the

interactions among three principles - autonomy, reciprocity, and reliance - each of which can be viewed and understood from both the perspective of the parties and of the society and economy generally. Various of the concrete expressions and special emphases that have been given to the three principles are discussed below.58 In the course of the discussion, the meaning and significance of the principles of autonomy, reci-procity, and reliance should become clear.

22. Interrelations of various explanations. - Each single explanation traditionally advanced for the

enforceability of contract59 necessarily leaves out of account aspects of the total situation and tends to ignore the interactions over time between social attitudes and institutions, on the one hand, and juristic views and solutions, on the other. Theories based on the individual will alone frequently did not point out that private ordering can have a social function; those emphasizing social purposes frequently overlooked that these purposes can sometimes best be accomplished through private ordering.

Historically, promises were enforced long before that result could be explained in terms of a market, credit economy; indeed, these economic developments may rest in significant measure on preceding juristic developments. Again, if social and political conditions are such as to cause individuals to hold certain expectations with increasing strength, the law is likely, in its turn, to afford additional protection to these expectations.60 Inevitably, the legal treatment of promises at any given period ultimately reflects the views of social and economic purposes and of the general human condition held by the society in question. Thus, a society may enforce some promises as a moral imperative without regard to their significance for social intercourse. A society may also enforce promises because it believes that human development and fulfillment require, by and large, responsible exercises of individual will and judgment. But these views do not exist apart from social and economic realities and values.

The legal enforceability of contract in any given social and economic order can hence best be explained by taking into account a variety of beliefs and purposes. Law in all its aspects is a cultural and sociological phenomenon; its institutions, principles, and rules must be understood as the resultant of interaction between past experience and attitudes, on the one hand, and contemporary perceptions and needs, on the other. The contours of contractual obligation at any period are drawn in terms of an historically given body of authoritative material as modified and developed by contemporary understanding. The complexity of the resulting amalgam inevitably defies the explanatory power of any single view or theory. i. Explanations From the Perspective of the Parties

23. The will theory. - In the nineteenth century, contract theorists often treated individual choice as though it were not merely an element of contract but, as the FRENCH jurist Demolombe expressed it, "the contract itself". 61 The FRENCH liberals tended to identify the mere choice with freedom, and freedom with the ultimate purposes of individual existence. "An obligation assumed is only the manifestation of a natural right of every human being to obligate himself and, thus, to manifest a freedom that he cannot give Up".62 The GERMAN jurists, who sought the origin of law in the common conviction of a community, maintained that the individual's choices become obligatory only because the law of a given community made them obligatory. Nevertheless, the essence of contract was still the order or command of an individual. As Windscheid stated: "A legal transaction is the exercise of the creative power that the private will possesses in legal matters. The individual commands, and the law adopts his command... as its own."6) A fundamental difficulty with these formulations of the will theory is that, as the social purposes of contract are not considered, no explanation is provided as to why society should find contracts worth enforcing except the unarticulated premise that society is basically nothing more than the sum of the individuals who constitute it.

Other difficulties with the will theory flow not so much from what it affirms - that contracts arise for the most

part from human choices - but from what it implicitly denies. In the first place, to focus exclusively on the act of the individual party is to ignore the fact that the party can only choose from among a range of possibilities that has already been delimited by the institutional order of his society, by the nature of the problem he is trying to solve, and sometimes by his economic position and that of the party with whom he is dealing. Nineteenth

century theorists tend to oscillate between the two opposite ways of dealing with these elements affecting party decisions: some jurists were prepared to regard them in certain extreme circumstances as interferences with the party's decision; others defined choice in such an abstract fashion that these elements' influence on the content of a contract was dismissed as irrelevant. The former alternative takes the concrete situation in which the party finds himself (without which a decision by that party would be inconceivable) into account only in terms of fraud, duress, or other interference with the decision-making process. The latter alternative is rather artificial. Moreover, whichever alternative one adopts, the inputs to the decision process are regarded by the will theory as entirely distinct from the act of choice. The theory did not claim to look beyond individual choice to the setting within which that choice was made; consequently, the theory has very little to say about that setting.

The will theory also encounters difficulty in deciding whether more particular and immediate influences on a

party's decision can vitiate that decision. Except where the will to contract is itself clearly absent, the theory is ambiguous with respect to the extent that one can properly take into account defects in the process through which the decision to contract was made. The will theory itself furnishes no clear guide e.g. as to whether and when mistake should vitiate consent. The theory presumably could support the proposition that mistakes affecting the decision to contract should always, never, or sometimes be taken into account. Moreover, approaching the problem of mistake in terms of the will theory provides no clear basis for developing solutions that rest on the consequences for one party of the other party's manifestation of his state of mind.64

Again, by focusing exclusively on the act of

choice of the individual party, the will theory neglects the impact of his choice on others who are not parties to the contract. J L1st as the will theory Calmot explain why a party should be confronted with a particular range of possibilities, it Calmot explain what side effects his choice of one of these possibilities will have on others. The nineteenth century theorists recognized, of course, that certain contracts could be detrimental to society: these were "illegal" and "immoral" bargains and were unenforceable. But their theories said almost nothing about which bargains should be illegal or were immoral: that was left to the will of the state. Moreover, their theories failed to discriminate among the various positive and negative effects that different contractual arrangements might have on a society. Contract was not seen as a social instrument but simply as the instrument of the parties.

Finally, although their theory does not necessarily so entail,65 the will theorists tend, for the most part, to

neglect both the rational and less rational factors within the mind of a party which lead him to make one decision rather than another. Whatever decision he makes is to be respected, but usually little attention is given to its motivations. Accordingly, in seeking to understand what the parties had done, the will theorists tended to look not at the practical objective the parties had in view but rather at the literal wording of their agreement or the very particular purposes that animated it.66 When the literalistic or subjective methods of interpretation present difficulties, these will theorists look to custom, which supposedly reflects the wills of other parties; and not to the transaction's consequences or its underlying economic purposes as seen by those party to it. These positions are no doubt less logical entailments of the will theory than a way of insulating the transaction from judicial reshaping or interference.

24. The psychological explanation. - The psychological explanation is the heir of the individualism which

inspired the nineteenth century will theory in that it also focuses on the contract as seen by the individual parties. At the same time, the psychological explanation can be viewed as a reaction against the artificialities of the will theory. According to the psychological explanation, contracts are not enforced simply because they are manifestations of the parties' will; they are enforced because harm will be done to one of the parties if they are not enforced. This harm, according to the theory, is the sense of injury which the breach of a promise arouses in the promisee. The promise calls forth an "expectancy" such that the promisee will feel he has been deprived of something that was his if the promise is broken. The law, rIDding this sentiment to be widely held, simply accepts it as the basis for enforcing promises.67 Are not the disappointed expectations themselves caused by preexisting social, linguistic, or moral conventions ?68 If so, the psychological state upon which this explanation builds is not innate but derives from experience and social practice. This theory, like the will theory, takes one element that normally occurs in the contracting process and tries to turn it into an explanation of the law of contracts. It faces here the same basic difficulties as the will theory itself: no effort is made to explain either the institutional and economic setting in which contracts are made or breaches occur, and a full analysis is not offered of the reasons in the mind of the parties that underlie the

choice they make when a contract is formed or of the sentiments they feel when it is broken. Moreover, the psychological explanation implies a less satisfactory account of the social function served by

contracts than does the will theory. The choice of the parties is normally necessary for their contract to play its role in a scheme of autonomous ordering; by focusing on choice, the will theory contains at least this element of truth. The degree of obligee outrage at breach, however, is not directly related to the institutional role played by contract. The law is not primarily concerned with whether the obligee feels outraged. It does not weigh his feelings of outrage against e.g. the obligor's desire to hold on to his money, nor determine whether an agreement is enforceable by asking whether the plaintiff will feel upset if relief is denied. Finally, the psychological theory cannot account for the importance the law attaches to whether a promise has actually been given. The giving of a promise admittedly affects the expectations of others, but many other events also influence their anticipations: the expectations of an experienced salesman may be as high before his customer signs a contract as after. But the law will only recognize his disappointment as a legitimate grievance if he was actually promised what he did not receive.

ii. Explanations From Social, Economic, and Institutional Perspectives 25. Onerous transactions in general. - Towards the end of the last century, the foregoing explanations of contract enforcement began to be complemented or replaced by explanations in terms of economic purpose and social function. Adherents of the principle of private autonomy are now less prone to describe contract as a manifestation of will and more prone to speak of it as a means by which a society without pervasive central planning can elicit and discipline the myriad of discrete decisions required to allocate and distribute resources.

"Withdraw contract - suppose that no one can count upon the fulfilment of any engagement - and the members of a human community are atoms that cannot effectively combine; the complex co-operation and division of employments that are the essential characteristics of modem industry cannot be introduced among such beings."69

Contractual obligation is here seen as an essential tool to the end of liberating the "powers of all men equally for contributions to a common good".70 Through a contract we can

"mutually... [further] each other's purposes because we are interested in our own ... The economic [or exchange] nexus indefmitely expands our freedom of combination and movement; for it enables us to form one set of groups linked by cohesion of faculties and resources, and another set of groups linked by community of purpose without having to fmd the 'double coincidence' which would otherwise be necessary."7!

The ideas behind these statements are rooted in liberal political and economic philosophies that reached

their apogee in the nineteenth century. But the part of liberal philosophy that has come.increasingly to the surface is the side which stresses social cooperation and social progress. Legal obligations are no longer said to exist simply because they are subjectively assumed, but because of the social and economic consequences that these obligations carry with them.7> It follows, of course, that as society's views re-specting such questions as the proper balance between self-reliance and paternalism change, contract law will reflect these changes both in its general theory and in its specific rules and principles.73 Just as advocates of the principle of private autonomy now tend to seek the final justification of that principle in its social significance, advocates of the planning principle now defend contract law as a means of enlisting individual initiative. The argument that in a complex society many kinds of decisions cannot be wisely or effectively made at the legislative or bureaucratic level is, of course, commonly advanced as well by partisans of the principle of private autonomy. According to the AMERICAN Restatement of Contracts 2d (1979),

"Bargains are widely believed to be beneficial to the community in the provision of opportunities for freedom of individual action and exercise of judgement. ... The enforcement of bargains rests in part on the common belief that enforcer. .ent enhances that utility."74

In part, this change in the explanation given for contract enforcement represents the revival of the idea that

one cannot talk about what the law is without discussing the purpose which it is designed to serve. As ]hering pointed out, the "conceptual jurisprudence" of the nineteenth century had little room for purpose.7S This neglect of the purpose served by a given institution affected not only the partisans of the principle of private autonomy but also the advocates of the planning principle. Just as many liberals defended contractual ordering simply on the ground that it was a manifestation of individual will and without specifying what it accomplished other than the effectuation of that will, so socialists of the Marxist persuasion defended govern-

ment ownership and planning on the ground that they manifested proletarian consciousness of class interests. The argument that central planning is a better means of accomplishing social ends than private ownership and private contract, first became widespread in the 1920'S and 1930'S and the acceptance in SOCIALIST countries that contract could serve as means to accomplish the purposes of central planning virtually began in the 1930'S. 76

26. Contract's economic function and onerous transactions. - The enforceability of onerous contracts can be

at least partially explained in economic terms. Voluntary exchange is, for those who adhere to the principle of private autonomy, the mechanism by which resources are moved from what the participants consider less valuable uses to more valuable ones. As Bentham put it:

"[T]he sum of enjoyment, as to these two interested parties, is augmented by the transaction... If there be an exchange, there are two alienations, each of which has its separate advantages. This advantage for each of the contracting parties is the difference between the value which they put upon what they give up, and the value of what they acquire. In each transaction of this kind, there are two new masses of enjoyment. In this consists the advantage of commerce."77

But if contracts are not enforceable, in nonsimultaneous exchanges one party runs the risk that the other will not render his performance in due course. Hence, the enforceability of contract can also be viewed as a response to the sequential character of much economic activity.78 Indeed,

"the absence of legally enforceable rights would, among other consequences, bias investment toward economic activities where the interval in which the contemplated economic activity could be completed was short, and this would reduce the efficiency of resource use."79

In the absence of enforceable contract rights, many sequential transactions would presumably still be

carried on. But the party who performed fIrSt would seek to protect himself against the possibility of nonperformance by the other party; the resulting

"system would not be very efficient. Apart from the costs involved in maintaining credit bureaus and administering security deposits (especially in a world where the return of the deposit could not be legally compelled), self-protection would not always work.80

There are thus strong economic arguments to support the enforceability of contracts. 27. Onerous transactions resulting from two-sided ordering. - It was remarked above (supra s. 22) that the

thoroughgoing will theorists of the nineteenth century never found a very satisfactory way to deal with the variety of influences, short of force and outright deceit, that formed part of the setting in which a contract was made and influenced its content. The early nineteenth century theorists tended to oscillate between ignoring such influences altogether and treating them as interferences with the contracting process. As pure will theory became less popular and concern with the actual content of the contract increased, a new justification of the institution of private contract was devised. By the last quarter of the century the content of a contract was said to be the outcome of an interaction between two opposing interests. 81 The content of a contract emerged from a "bargaining process" which was pictured as a sort of contest in which adversaries of roughly equal bargaining power seeking different goals reached a mutually beneficial accommodation. Contract was "the procedure of adapting private wills to the utilization of common efforts in order to satisfy reciprocal, individual interests." 82

This view broke sharply in some ways with the older will theory. When the more traditional will theorists

worried about the justification for enforcing contracts, usually they argued either that whatever a party chose ought to be regarded as an exercise of freedom, or that whatever both parties agreed upon was of no concern to others unless the rights of others were jeopardized. These older explanations did not concern themselves with the content of the contract but merely with the fact that the parties had agreed to it. The newer explanation professed some concern over the content of the contract and recognized that a contract could be unfair even if both parties had consented to it. The bargaining process was supposed to guarantee that the content of the contract was fair. Bargain implies an element of give-and-take and ordinarily serves to concentrate each party's mind on the terms of the transaction. But the theory did not explain just what consti-

tuted equal bargaining power nor explain why bargaining by parties who were not equal in every sense of the term would ensure that the transaction would be fair at least in the sense that the positions of all those party to it would be improved. Presumably, the equality in question was necessarily formal and regarded essentially procedural advantages. The theory thus viewed the content of a contract as fair, and the contract deserving of enforcement, if the transaction satisfied minimum standards of procedural fairness and did so because the transaction resulted from a process of ordering involving the give-and-take of bargaining. The bargain theory also fails to explain why onerous transactions resulting from a process of ordering that did not involve negotiation by the individual parties (supra s. 19) should be enforced. Where the price and other terms result from the play of free market forces, presumably these are a surrogate for bargaining by the individual parties. The bargain theory can then be seen as a specific application of the broader proposition that a contract is fair, and deserving of enforcement, if the terms of the transaction were established through an ordering process that is either directly or indirectly (as where the terms are fixed by market forces) reciprocal in nature in the sense that each party is prepared to trade on the best terms (as evaluated in the light of that party's utilities) available if the exchange will produce a net gain for him. 28. Onerous transactions resulting from one-sided ordering.83 - The view that a contract is fair and enforceable when it results from a reciprocal or two-sided process of ordering does not, of course, justify the enforceability of transactions that result from nonreciprocal or one-sided ordering. Nonreciprocal ordering can be said to occur when one party will contract only on prefixed, wholesale terms. In these circumstances, if a trade is to occur, the other party must accept (except perhaps for price adjustments) a comprehensive set of terms that the first party has developed and uses for the category or class of transactions in question. Since the contract partner insists that these standard terms or general conditions be utilized, the party to whom they are proposed has little or no opportunity to reshape them to take into account his particular situation. Standard form contracts are often proposed by parties whose market position has monopolistic characteristics. But the basic reason why parties will refuse, in principle, to transact on a particularized basis is that standardized contracts avoid the costs of custom tailoring each transaction and facilitate an exact calculation of risks by large enterprises. Such contracts also ensure clear and highly similar legal relations with customers and facilitate centralized control over the various parts of large, complex enterprises.84 And the use of standardized contractual terms is. as well" a true reflection of the spirit of our time with its hostility to irrational factors in the judicial process, and ... belong(s) in the same category as codifications and restatements."8s

The use of standardized terms is thus intimately connected with production and distribution for large-scale

markets. Yet, despite its provenance in forms of economic activity that are widespread in contemporary societies, the phenomenon troubles contract theory. In part, the unease flows from the traditional focus of doctrine on the individual act of consent and the individualized negotiating process.86 But the basic difficulty is that the ordering in question is, in principle, nonreciprocal or one-sided and thus gives rise to the concern that one side to the transaction will, in view of his essentially passive posture, typically act in a significantly less rational manner than the same party does when he participates in reciprocal or two-sided ordering.

"[T]he inner force of the legal transactional (rechtsgeschafilichen) will has declined... The individual feels himself helpless in facing the enterprise; he fits himself reluctantly to the legal conditions that are forced upon him due to his situation, too weak to structure them according to his personal wishes, not in a position to see, in advance, their full extent and implications, relying on the typicalness of his case which is to assure him a bearable decision. In place of a free decision made after a responsible assessment of the consequences there occurs a passive participation in an impersonal legal relationship formed in advance by another." 87

The view that the behavior of the adhering party in standardized transactions is normally passive and

unreflective provides a basis for treating such transactions for some purposes quite differently from particularized transactions. Most importantly, the substantive justice of the former may be subjected to review where that of the latter is not.88 This review is more feasible and less burdensome than would be a comparable control over particularized transactions because recurrent patterns are presented. 29. Non-onerous transactions. - The explanations just advanced for the enforcement of onerous contracts do not apply to non-onerous or donative transactions. Because the normal purpose of donative contracts is not to break down individual autarchy by exchanging wealth of one kind for wealth of another but rather to change the distribution of wealth among individuals, they do not necessarily serve as a means of coordinating the use of resources and of enlisting private initiative. (Donations may, however, have these effects; e.g. charitable giving may serve both to coordinate resources and enlist initiative for a charitable cause. These effects are, of

course, achieved less directly than would be the case were onerous transactions employed.) In this special sense and to this extent, donative contracts are economically sterile transactions in that they do not serve, at least directly, to produce wealth; in the larger sense of increasing the welfare of both parties such contracts are not "sterile", however.

The nineteenth century justification for enforcing promises of donation was that the binding force of such

promises was implicit in the idea of private property and the right to dispose of private property as one wills. In the twentieth century, the right to dispose of private property by contract has ceased to be regarded as an end in itself, and has come to be treated as a means to an end. Since non-onerous transactions serve rather different purposes from onerous transactions, they are accordingly thought to require a rather different justification. 89 The most popular general justification has been found in the idea of justifiable reliance.9O (This justification may also be available, of course, for the enforcement of promises made in the context of onerous transactions. However, when "the principle of the due observance of promises became the pivotal key around which the modern law of contract was built,"9' reliance came to be seen, at least in the case of onerous contracts, as a supplementary rather than a central explanation for enforceability.) If the promisor can anticipate that! the promisee will change his position or assume obligations because of his reliance on the promise, then the promisor should either perform his promise or pay for the loss he has caused by not doing so.92 Protection given solely on this basis would be limited like remedies in tort to the loss resulting from the change of position.

This argument can be cast in more specifically economic terms. "The... promise induced reliance that cost

the promisee heavily when it was broken. Such a cost can be avoided for the future by holding... [the] promisor liable for the promisee's reliance costS."93

The proposition can also be advanced that enforceability of promises of donations is, in general terms, in

the promisor's (as well as the promisee's) interest because, in the circumstances, one derives utility from the commitment to a future course of action. Presumably a promise is not made (nor does a transfer of value occur) unless the promisor (or transferor) derives utility from an increase in the utility (or welfare) of the promisee (or transferee).94 But, if the promisor is not bound to perform his promise, the present utility he derives therefrom is reduced because the promisee will discount the possibility of nonperformance. By making a binding promise, the promisor thus increases the present value of the gift to the promisee and, by the same token, to himsel£ Accordingly, the promisor derives increased utility from an irrevocable commitment unless the reciprocal disutility of losing the freedom to change his mind in the future is greater.95 This explanation in utilitarian terms may seem forced and unconvincing; in all events irrevocability may also be supported on the ground that the donor's satisfaction of moral, religious, or other beneficient motives can justify his making binding commitments.

A related argument supporting the enforceability of donative promises is that, if one "cannot bind himself to make a series of future gifts, he may be led to substitute a one time transfer, the

present value of which is less than that of the series of future gifts, although greater than that of a declared but unenforceable intention to make a series of future gifts. Thus, non enforceability of gratuitous promises could tend to bias transfers excessively toward immediacy."96

This bias can be costly for those who derive utility from making donative promises because liquidity, tax, or

other considerations may make it desirable to make a series of gifts over time rather than to give a lump sum at one time.97

There are also a variety of special circumstances in which enforcement has a particular justification. A society may enforce promises to give, made in a family context, in order to facilitate certain intra family arrangements - e.g. providing for the support of a handicapped child - that are considered desirable. On the other hand, as an enforceable promise to give can also be used in ways that threaten family stability and harmony, considerations of family well-being may cause a society to impose significant limitations on the enforceability of intra family promises. Finally, a society may view the enforceability of certain donative promises, such as charitable subscriptions, as a means of allowing decisions about the distribution of resources to be made at an individual level and consequently as deserving of enforcement.

* The author had the benefit of comments from many colleagues. Particularly valuable and extensive criticism was given by Professors Jean Carbonnier, Charles Pried, James Cordley, Steven Sha/lell, Henry Steiner, Donald Trautman, and Cuenter Treitel. 1 For related discussions, see this Encyclopedia vol. XI ch. I s. 32-48 and ch. 12 s. 4-45. 2 Cilmore 88; see also Atiyah, Contracts 221-223. For a survey of FRENCH writing taking a somewhat similar position, see Martine 21-22. See generally this Encyclopedia vol. XI ch. 1 s. 32-48. 3 Gilmore 87. 4 See idem 140 n. 228. 5 See idem 87. 6 Idem 88. 7 Cf this Encyclopedia vol. XI ch. I s. 46. 8 See ch. 12 s. 47-72; see also infra n. 260. A comprehensive comparative study of the problem is Schlechtriem, Vertragsordnung und auBervertragliche Haftung (Frankfurt 1972) (AMERICAN, FRENCH, and GERMAN law). 9 See Rodicre, Responsabilite (en general) no. 6473: Encyclopedie Dalloz. Repertoire de Droit Civil VI (ed. 2 Paris 1979). Thus conduct occurring before a contract is concluded or after it is terminated can only give rise to delictual obligation; see idem no. 68-69,71; see also this Encyclopedia vol. XI ch. 1 S. 40-42. 10. Mommsen, Erorterungen aus dem Obligationenrecht II (Uber die Haftung der Contrahenten bei der AbschlieBung von Schuldvertragen) (Braunschweig 1879) 5. 11 See Kessler and Fine, Culpa in Contrahendo, Bargaining in Good Faith, and Freedom of Contract A Comparative Study; 77 Harv.L.Rev. 401-449,409-412 (1964). 12 See infra ch. 4 subch. IV. 13 The seminal work on the unilateral act theory of obligation is Siegel, Das Versprechen als Verpflichtungsgrund im heutigen Recht (Berlin 1873). For the influence of the GERMAN theory in FRANCE, see de la Moutte, L'actejuridique unilateral (Paris 1951). 14 For a discussion of the treatment of rewards, see infra ch. 9. I5 See Ussing, Aftaler (ed. 3 Copenhagen 1950) 17 ss.; von Seth and Karlgren, Schweden: Schlegelberger, van Seth a.o. (ed.) , Das Zivilrecht der nordischen Lander I. Das Zivilrecht Finnlands und Schwedens (Die Zivilgesetze der Gegenwart X) (Mannheim a. o. 1933) 91-184, 134-137. For general discussion of the LOjte theory and of some of its consequences for the law of contract, see Wennberg, Die Skandinavische L6ftetheorie (Stuttgart 1966) 31-50. 16 See von Seth and Karlgren (supra n. 15) 135. 17 See Restatement of Contracts 2d (1979) ch. 4 topic 3, Statutory Note. 18 The Restatement of Contracts 2d (1979) replaced the Restatement of Contracts (1932). For a discussion of the preparation of Restatements and their significance, see this Encyclopedia vol. 10-146 to 0-147. 19 Restatement of Contracts 2d (1979) § 104 (2). 20 Cheshire, Fifoot (-Furmston) 18. 21 For a discussion of the FRENCH literature, see Gomaa, Theorie des sources de I'obligation (paris 1968) 94-106. 22 Mazeaud and Tunc I no. II9. 23 Ripert no. 22 p. 38; infra s. 23. 24 The promise of a reward perhaps constitutes an exception; see infra ch. 9. 2S FRENCH and GERMAN law imply an acceptance by the promisee when the promise does not seek a return act or performance. E.g. Cass.req. 29 March 1938, D.P. 1939.1.5 note Voirin, S. 1938.1.380 note; RG 25 March 1930,JW 1931,1353. 26 E.g. the doctrine of "promissory estoppel"; see Restatement of Contracts (1932) § 9°; Restatement of Contracts 2d (1979) § 9°. For the status of promissory estoppel in ENGLISH law, see Powell, Good Faith in Contracts: 9 Curr.Leg.Prob\. 16-38 (1956); Atiyah, Freedom of Contract 776-777. 27 Cf, Jacobi, Versprechen und Vertrag: ]her] 35 (1896) 49-5°; Heck 121-122. 28 The remedies provided by the COMMON LAW for the enforcement of promises under seal generally are in most respects identical with those available for what are arguably "contracts" in a fuller sense of the term. 29 It is perhaps paradoxical that the COMMON LAW is somewhat more willing to enforce strictly unilateral acts than is the CIVIL LAW, while the CIVIL LAW is prepared to enforce essentially one-sided transactions involving an element of participation by the promisee to which the COMMON LAW denies enforceability under the doctrine of consideration; see generally infra ch. 10. The differences are explainable in terms of doctrinal developments rooted in history. The enforceability of a promise under seal was established in the COMMON LAW before a general theory of contract existed; accordingly, the question whether a contractual obligation arises in a strictly unilateral situation never seemed decisive for the enforceability of the commitment undertaken. The GERMAN CC § 305, on the other hand, reflected contractual theory's domination of thinking respecting autonomous ordering, a domination which predisposed the system to consider strictly unilateral ordering unenforceable in principle. 30 Farnsworth, The Past of Promise - An Historical Introduction to Contract: 69 Colum.L.Rev. 576-607, 578 (1969). 31 "The market order reconciles the claims of the different non-economic ends by the only known process that benefits all - without, however, assuring that the more important comes before the less important, for the simple reason that there can exist in such a system no single ordering of needs. What it tends to bring about is merely a state of affairs in which no need is served at the cost of withdrawing a greater amount of means from the use for other needs than is necessary to satisfy it. The market is the only known method by which this can be achieved without an agreement on the relative importance of the different ultimate ends, and solely on the basis of a principle

of reciprocity through which the opportunities of any person are likely to be greater than they would otherwise be": Hayek, Law, Legislation and Liberty II (Chicago and London 1976) II3. 32 Fuller, The Forms and Limits of Adjudication: 92 Harv.L.Rev. 353-409, 386 (1978{79). 33 See e.g. the FRENCH experience discussed infra s. 14. 34 See Atiyah, Freedom of Contract 716. This work considers contractual theory and the role of contract from 1770 (with attention to the earlier history as well) to 1970 in ENGLAND. Of particular interest is the effort to show the interrelation between these matters and economic and political theory, practices, and conditions. 35 See generally infra ch. 5. 36 It is said that "[b ]usinessmen often prefer to rely on 'a man's word' in a brief letter, a handshake, or 'common honesty and decency' - even when the transaction involves exposure to serious risks" : Macaulay, Non-Contractual Relations in Business A Preliminary Study: 28 Am.Soc.Rev. 55-67, 58 (1963); see also Willoweit, Abgrenzung und rechtliche Relevanz nicht rechtsgeschaftlicher Vereinbarungen (Berlin 1969) 34. Businessmen at times enter into explicit agreements, specifying that no legal obligation attaches; e.g., Rose and Frank Co. v. J. R. Crompton and Bros., Ltd., [1923] 2 K.B. 261 (c.A.), [1925] AC. 445 (H.L. 1924). 37 In societies in which the rate of change is very gradual, one's economic activities and social position may be largely defmed by the circumstances into which one is born and sanctioned by various forms of social and communal pressure. In such societies, economic activity and exchange are regulated by customary standards and practices and little reshaping occurs in the course of particular transactions. Custom and status can be said to play for such societies the role of a crystalized or frozen plan. 38 Kornblum, Grenzfragen des ordre public in der privaten Schiedsgerichtsbarkeit: KTS 1968, 143-157, 145. 39 Macaulay (supra n. 36) 62. 40 The so-called "fundamental theorem of exchange" is to the effect that, postulating rational behavior, "[i]f exchange were not beneficial for both parties, one or the other would refuse to trade": Hirshleifer, Price Theory and Applications (Englewood Cliffs, N.]. 1976) 164. Accordingly, a "mutual gain" results from each trade; there "is an improved allocation of consumption goods [,services, and so on] over individuals": idem 165. As used here, the expression "gains from trade" refers to the allocation between the parties of the mutual gains produced by the trade. Neither party will contract unless the performance he is to make has, in his estimation, less utility than the performance he is to receive from the other party. However, as the "Edgeworth box" exemplifies (see idem 165-166), there is ordinarily a "region of mutual advantage" a range of possible allocations of gains between the parties - within which trading can occur. In other words, the respective views of utility held by each party permit any trade whose terms fall within the region of mutual advantage as both parties are better off. In the absence of a perfect market, the more skilled or powerful trader will usually be able to trade on terms that give him the lion's share of the "gains from trade" represented by the "region of mutua! advantage." 41 See infra ch. 5. 42 This phenomenon is less developed in GERMAN law and is hardly discussed in the literature. Some observations that touch on the topic are found in Fikentscher, Die Geschaftsgrundlage als Frage des Vertragsrisikos (Munich 1971) 98-103. 43 De Laubadere 453: "[ c ]ontracts of stabilization, program contracts, progress contracts, fiscal contracts, [and] contracts carrying out the Plan ...;" for the FRENCH experience see also Vasseur 5; Timsit, Les contrats fiscaux: D. 1964. Chr. II5. 44 De Laubadere 453. 45 Vasseur 48. 46 See de Laubadere 463-467; Timsit (supra n. 43) 120. 47 See Vasseur 48. 48 In discussions of contract law one is tempted to call the principle of private autonomy the "liberal principle" and the planning principle, the "socialist principle". However, if the hallmark of socialism is simply the public ownership of the means of production, the equation between "socialism" and a preference for ordering through central planning is a typical, yet not a necessary one. "Liberalism", even when deEmed simply in terms of private ownership of the means of production, would seem to have a strong affinity for the principle of private autonomy but the connection is perhaps not inevitable. For these reasons, and in order to avoid the use of terms that have acquired for many a distinct political connotation, the expressions "liberal principle" and "socialist principle" are not used. 49 Raiser 278. 50 See i'!fra s. 28,74,77-82; see generally infra ch. 12 on Standardized Contracts and General Conditions. 51 Saleilles 229-230; for a recent discussion that emphasizes FRENCH theory and practice, see Berlioz, Le contrat d'adhesion (ed. 2 Paris 1976). 52 See Martinus de Fano, Formularium LXXXII: Wahrmund (ed.), Quellen zur Geschichte des RomischKanonischen Processes im Mittelalter I no. 8 (Innsbruck 1907) 32-34; de Beaumanoir (Salmon, ed.), Coutumes de Beauvaisis II (paris 1900) § 1094. 53 See Prausnitz 17: The terms were very harsh.Regulatory ordinances designed to improve the pilgrim's lot provided that "the space for one pilgrim shall be 6¥2 to 7 handbreadths long and 2¥2 handbreadths wide, providing that two pilgrims may be housed in this space 'if it is customary so to place them in the ships, that the one should put his feet next to the head of the other"'. 54 It is remarked e.g. that a "very usual, though not essential, characteristic of these depersonalized contracts is ... the economic superiority of one of the parties": Raiser 18.

55 For a discussion of the history and influence of the will theory in ENGLISH Common Law see Atiyah, Freedom of Contract, esp. 212-216, 399-408, 442-445. 56 See generally Berman 29-65. 57 For the decline of the will theory in CONTINENTAL EUROPEAN juristic theory, see Rieg, Le contrat dans leg doctrines allemandes du XIXe siecle: Arch.phil.dr. 13 (1968) 31-49, 40-41. 58 See infra s. 23-29. 59 Ibidem. 60 For an interesting discussion of this phenomenon in ENGLISH law, see Atiyah, Freedom of Contract 109IIO. 61 Dem%mbe, Cours de Code Napoleon XXIV (ed. 2 Paris 1870) no. 45 p. 47. 62 Ripert no. 22 p. 38; Ripert goes on to remark that: "The natural law school had persuaded everyone that this engagement, because it is voluntary, is necessarily in conformity with the moral law... Fouillee is so convinced of the correctness of this doctrine that he does not make any effort to justify private autonomy. He simply writes: 'All justice is contractual; who says contractual, says just'." Cf, Fouillee, La science sociale contemporaine (ed. 2 Paris 1885) 410. Fot/illee further remarks (p. 420) that "the contractual regime... alone brings about an equilibrium of the two principles between which humanity always oscillates...: liberty and solidarity, in other terms, individuality and collectivity." 63 Windscheid, Lehrbuch des Pandektenrechts (ed. 9 Frankfurt 1906) § 69 n. 1 a; if Motive zu dem Entwurfe eines Biirgerlichen Gesetzbuches fUr das Deutsche Reich I (Allgemeiner Theil) (Berlin 1896) 126; see also Marty and Raynaud no. 32. This was the view widely held by FRENCH and GERMAN jurists in the nineteenth century. "[T]he will draws its force from itself... As all juridical institutions without exception derive from the human will, it is normal that each individual can create legal effects by means of the juristic act in general, and the contract in particular": Rieg (supra n. 57) 40_4I. 64 The problems raised by mistake and other defects in the contracting process are considered in ch. II infra. 65 For instance, contemporary economists can be said to employ a version of the will theory when they analyze various contractual problems - e.g. the effect of changed and unforeseen circumstances or remedies for breach of contract - in terms of bargains that might be struck ex ante by parties who addressed their attention to the contingency; see e.g. infra s. 96. 66 Cj, Aubry and Rau, COHrS de droit civil franais I (ed. 4 Paris 1869) no. 40. 67 See Fuller and Perdue 57; the most important formulation of this view in CIVILIAN literature is Schlossmann, Der Vertrag (Leipzig 1876). 68 Another explanation for the binding effect of promises views the problem from the perspective of the promisor rather than of the promisee. Promises are considered binding because of the benefits the promisor receives from the practice of promising in which he takes part by making a promise. See Hart, Are There Any Natural Rights?: 64 Phi1.Rev. 175191 (1955); Rawls, Two Concepts of Rules: 64 Phil. Rev. 3-32 (1955). 69 Sidgwick, The Elements of Politics (ed. 2 London 1897) 82. 70 Green, Lecture on Liberal Legislation and Freedom of Contract: idem (Nettleship, ed.), Works III (London 1891) 365, 372. 71 Wicksteed (Robbins, ed.), The Common Sense of Political Economy I (London 1933) 179-180. 72 Sa/eWes p. viii makes the point as follows: Where there is a conflict between the real and the apparent will, solutions will depend "upon the needs of credit, upon the requirements of good faith and upon the views of modem life." 73 Cj, Atiyah, Contracts. 74 Restatement of Contracts 2d (1979) § 72 com ment b. 75 See Jhering, Der Zweck im Recht I (ed. 4 Leipzig 1904) preface. 76 See generally Berman 29-65, 98-100. 77 Bentham, Works I (Edinburgh 1843) 331-332. 78 See Posner, Economic Analysis § 4.I. 79 Ibidem. 80 Idem 67. 81 During the nineteenth century, jurists had begun to regard contract as a struggle of contrary interests rather than as a union in pursuit of common interests. "It is of the nature, or indeed even of the essence, of mutually remunerative contracts that a struggle of contrary interests takes place between the two parties who represent them; this struggle, in fact, is the liberty of commerce itselfI": Demolombe (supra n.61) no. 178. This view of contracts was the beginning of a shift towards regarding the accommodation of contrary interests through a process of bargaining as the justification for the contracting process. 82 Sa/eilles 229. 83 The problems raised in this section are discussed at length below in ch. 12 on Standardiied Contracts and General Conditions. 84 See Raiser 92. 85 Kessler 632; see also Grunfeld, Reform in the Law of Contract: 24 M.L.R. 62-84. 64 (1961). 86 See e.g., Bernitz, Consumer Protection and Standard Contracts: Scand.Stud.L. 17 (1973) II-50, 16: "Thus, the Contracts Acts enacted jointly by the Scandinavian cowltries and still applicable (in Sweden from 1915) were drafted on the basis of the assumption that, in principle, contracts are individually formulated. On the whole, no rules were

adopted at that time to deal with standardized mechanisms for making contracts or with the problem of construing standard contracts." 87 Raiser 148. 88 For a discussion of this problem, see infra s. 72-82 and ch. 12. 89 The differences in the justifications advanced for the enforcement of onerous and non-onerous transactions also find expression in differences in the treatment for various purposes accorded the two classes of transactions; e.g. donative transactions are subject to formal requirements that do not apply to onerous transactions; see generally ch. 10. 90 See generally Fuller and Perdue 396-420. 91Atiyah, Freedom of Contract 353. 92 The reliance argument, together with the practical difficulties that would be encountered in undoing completed transactions, goes far to explain why most legal systems consider completed gifts irrevocable while promises to give are usually revocable at least where formal requirements are not satisfied; see generally infra ch. 10. 93 Posner, Economic Analysis § 4 p. 67-68: The economic argument does not extend to donative promises that are unlikely to induce reliance, however. 94 See Posner, Gratuitous Promises 412-413: Where one derives utility from an increase in the promisee's utility or welfare, the utilities are said to be "interdependent". 95 See idem 413. 96 See ibidem. 97 See ibidem.