Principles of Contracts: Outline

I.     Sanctity of Promise

A.     Promise (Vow).

1.     God makes promises to man. Gen 12:1-3.

a.     God has authority to promise

b.     God has liberty whether to promise

c.     God must keep His word. Num. 23:19; Ezek. 12:28; 1 Pet. 1:25.

2.     Man makes promises

a.     to God, i.e., Nazirite vow (Num. 6).

b.     to man, i.e., Jacob serving Laban for Rachel, Gen. 29:18.

c.     Man has both authority and liberty to make promises. (Freedom not to promise.) See, Ecc. 5:5.

d.     Law of vow – Num. 30.

3.     Absolute nature of obligation. Eccl. 5:1-7; Deut. 23:21-23.

a.     Fraud notwithstanding. Joshua 9:3-21.

b.     Foolishness notwithstanding. Judges 11:30-35.

B.     Oaths (promise coupled with a curse). “I will do this, or else let that happen to me.”

1.     Example of Rahab: Joshua 2:12-14.

2.     God swears by himself. Heb. 6:16-18.

3.     Oaths are risky. Lev. 19:12. Psalm 15:4.

– Matt. 5:33-37 – Don’t be truthful only under oath, but tell the truth all the time. Jesus: oaths are unnecessary, but still permissible. Jesus himself submitted to a judicial oath imposed on him by the priest at his trial, Matt. 26:63.

C.     Agreement (reciprocal promises). Parable of Matt. 20:1-16.

1.     Liberty to set contract terms.

2.     Unequivocal duty to keep the promises made.

3.     Enforceability not linked to concepts of “fairness.”

II.     Principles of Contracts

A.     Liberty of Contract – Which law forms a part of the contract?

1.     Majority in Ogden v. Saunders.

a.     Rejects law of nature – “merely moral obligation”

b.     Incorporates state law as a part of every contract.

c.     State law cannot impair what it creates.

2.     Marshall legacy – dissent in Ogden v. Saunders.

a.     Contract liberty not civilly conferred

b.     Civil government to secure only more effective remedy for breach

c.     Only contracting parties can set terms

B.     Civil enforcement

1.     Authority to remedy breach (Rom. 13:4)

a.     How to prove breach (Evidence)

(1)     Rules of drafting

(2)     Statute of frauds

b.     Recording, Witnesses

c.     Right to a hearing

2.     Security of inalienable rights

a.     Man is a created being with God-given rights which are unalienable

b.     The purpose of civil government is to secure unalienable rights

c.     Unalienable rights include pursuit of happiness

– Declaration of Independence; Allgeyer v. Louisiana.

(1)     Freedom of choice and economic/dominion liberty

(2)     Individuals free to set their own contract terms

(3)     No authority to legislate happiness

3.     No impairment of contract obligations, notwithstanding

a.     injury to parties; or

b.     impossibility. Why? Cannot make illegal what was legal at the time

c.     Fletcher v. Peck (Supp. 214) – the common law rule. The state (Georgia) legislature must keep its promise, no matter what. How does Fletcher uphold the sanctity of vow?

C.     Unenforceable agreements

1.     Law of Love.

a.     Is the relationship governed by love or commerce?

b.     Gifts => love relationship. Love is not enforceable, thus, at common law, undelivered gifts were not enforceable. Similarly, moral obligations are enforceable by God only.

c.     Consideration => commercial relationship, thus, enforceable.

(1)     Illusory promises (“I promise to do what I want to do.”) lack commercial character, thus, are unenforceable.

(2)     “Promises under seal” under common law acknowledged sanctity (enforceability) of promise even where consideration is lacking, i.e., relationship under seal was not governed by love.

2.     Illegal agreements (malum in se). “Illegal” means the purpose of the contract violates law (of nature). Otherwise, enforcement of immoral obligations.

a.     Bribery

b.     Gambling

c.     Prostitution. But see, as sex crimes have become decriminalized, courts have begun enforcing contracts for cohabitation (Lee Marvin case), formerly regarded as illegal in se.

d.     Murder

3.     Prohibited agreements (malum prohibitum)

a.     Usury. Deut. 23:19-20.

(1)     Biblical definition of usury – any interest charges. Enforceability depended on love v. commerce, or relationship of parties (legal determination).

(2)     Modern definition of usury – excessive interest charges. Enforceability depends on reasonableness of terms (factual determination).

b.     Statutes prohibiting the unauthorized practice of law, for example, in their root prohibit non-lawyers from making certain kinds of contracts. If one person wants a friend to handle a lawful transaction for him, is it up to the state to decide whether his friend can do that?

III.     Demise of Contract Liberty

A.     Intrusive regulation

1.     Minimum wage/price fixing

2.     Limitation of parties (utilities, regulated industries)

3.     Comparable worth

B.     Failure to enforce obligations

1.     Impracticability – favors the rich/great.

2.     U.C.C. §2-302 “Unconscionability” – favors the poor/small.

3.     Reasonableness standard. Deprives vow-breakers of God’s promise to reward the covenant-keeper. Ill gotten gains do not profit. Prov. 10:2.

4.     Jones v. Star Credit Corp..

a.     Judge contrasts law v. fairness, rules in favor of fairness.

b.     UCC enacts “moral sense” of the community. Are purely moral obligations enforceable by civil rulers?

c.     Basis for holding: size of profit justifies modification of contract.

C.     Compulsory agreements

1.     In Re Bollinger Corp.. Statute required security agreement to be a writing signed by the debtor. Debtor signed no security agreement, yet court still found one to exist. How can a contract be said to exist?

2.     Closed-shop union memberships

3.     Antidiscrimination laws (employment, housing, etc.)

4.     Mandatory auto insurance