Atiyah - The History and Development of Contract Law PDF

# Table of Statutory Instruments ## xxxviii. European Regulations ### Regulation on Denied Boarding and Cancellations or Long Delays 330 # I. Introduction ## I. The Classification of Contract Law The law of contract is part of the law of obligations, that is to say, it is concerned with obliga...

# Table of Statutory Instruments ## xxxviii. European Regulations ### Regulation on Denied Boarding and Cancellations or Long Delays 330 # I. Introduction ## I. The Classification of Contract Law The law of contract is part of the law of obligations, that is to say, it is concerned with obligations that people owe to others as a result of the relations and transactions in which they become involved. Broadly, this is a part of private law, in the sense that obligations of a public character, such as constitutional or political obligations, are neither treated by the law nor thought of by lawyers as part of the law of obligations. Public bodies are, it is true, subject to the law of obligations; for example, they can enter into contracts and thus submit themselves to the ordinary law of contract. But the broader duties of such bodies fall outside the scope of the law of obligations as commonly understood. Nor is the criminal law conceived by lawyers as part of the law of obligations. The criminal law imposes legal duties on citizens that are obligations in a sense. But they are not owed to anyone in particular, and their enforcement normally rests with the police and other public bodies. By contrast, the law of obligations deals primarily with duties owed by individuals to other individuals, and these duties are generally enforceable only by the persons to whom they are owed. A victim of a crime can complain to the police, who may prosecute the offender. But victims of a breach of a private obligation, such as a breach of contract, must enforce their rights in the courts without the assistance of any public authority. Obligations arise from a variety of sources and can be classified in various ways. For example, they can be classified according to the social relationships from which they arise. Thus, one can distinguish between obligations owed to members of one's family, obligations between neighbours, obligations arising from an employment relationship, and so on. But the law has traditionally treated the basic distinction as that between obligations that are self-imposed, that is to say, obligations arising from an agreement, promise, or other undertaking, and obligations that are externally imposed. Broadly speaking, the law of contract is understood as that part of the law that deals with obligations that are self-imposed. The main parts of the law dealing with externally imposed or ‘extra-contractual’ obligations are the law of torts (which deals with obligations not to interfere with another’s person, property, or liberty) and the law of unjust enrichment (which deals with obligations to restore money or to pay for non-contracted-for benefits). While the above distinctions play an important role in how lawyers think about the law, they are not clear-cut. Indeed, one of the central questions when thinking about the law of obligations is whether the distinction just drawn between contractual obligations and extra-contractual obligations should be used at all. For example, a breach of contract (as opposed to the events that give rise to a contract) is normally regarded as a legal wrong, and so may plausibly be described as a tort (‘tort’ being another word for ‘wrong`). More importantly, many of the obligations recognized by the law of contract cannot be realistically thought of as self-imposed (equally, matters of consent or agreement are by no means irrelevant in the law of tort or unjust enrichment). In a typical consumer sale, for example, the vendor is subject to a wide range of legislatively imposed obligations concerning the quality of the goods, guarantees, and so on. Some scholars have gone so far as to suggest that even in its core applications the law of contract is similar to the law of tort in being fundamentally concerned with externally imposed obligations. In particular, it is sometimes argued that contractual obligations are best understood not as self-imposed obligations, but as obligations to ensure that those whom we induce to rely upon us (by a promise or otherwise) are not left worse-off. And even scholars who do not explain contractual obligations generally on this basis often adopt a reliance-based explanation of particular contract law rules. For example, the rule that the meaning of a contractual statement is established on the basis of how a reasonable listener would understand it rather than according to the meaning the speaker intended to convey is often explained in this way. Two other classificatory matters should be mentioned at this point. First, even if it is accepted that there is an important difference between contractual duties and extra-contractual duties, it is clear that a single set of facts can sometimes give rise to both contractual and extra-contractual liability. For example, if a vendor fails without good reason to deliver contracted-for goods, the purchaser can normally go to court and obtain an order that the vendor pay compensation equal to the financial value of the vendor’s promise to deliver. This is a contractual claim. In addition, if the purchaser has paid in advance for the goods, an alternative claim for restitution of that payment, that is to say, to get back one’s money, is usually available. This is a claim in unjust enrichment. Similarly, a negligent failure to provide a contracted-for service (e.g. financial advice) will sometimes give claimants the choice of a claim in contract (for compensation for failure to obtain the promised level of service) or a claim in tort (for losses caused by the negligent provision of services). Secondly, the generally accepted idea that there exists an English law of contract, as opposed to a law of contracts, must be treated carefully. Admittedly, the common law, unlike the civil law, does not formally recognize different categories of contracts. In principle, all contracts are subject to the same set of rules. But in practice the common law’s approach is not that different from the civil law. Contracts of sale, employment, insurance, agency, partnership, security, and many others have long been subject to special category-specific rules. Indeed, the general rules now constitute a relatively small part of the law of contract. Few contracts are not subject to same category-based special rules, and some contracts (e.g. employment contracts) are almost entirely governed by such rules. Furthermore, it is clear that other, less formal distinctions play an important role in practice. In particular (as we shall see in more detail in subsequent chapters), the distinctions between executory (unperformed) and executed (performed) contracts, commercial and non-commercial contracts, and one-off or ‘discrete’ contracts (e.g. the typical sale) and long-term or ‘relational’ contracts (e.g. a franchise contract or a contract of employment) are highly significant in some areas of contract law. ## 2. The Justification for Contract Law Alongside the classificatory questions just considered, a second set of questions about contract law focuses on justificatory (‘normative’) issues. The most basic question of this kind is the following: what, if anything, is the justification for contract law? Assuming that contracts are voluntary undertakings, why should the law enforce such undertakings? Stated differently, on what basis is it legitimate for the state, acting through the courts, to sanction individuals for breaking contracts? Why lend the state’s support to what is an essentially private complaint? Virtually all societies have evolved laws for the enforcement of contracts, so it is no surprise that most commentators believe that, while certain aspects of the law may pose difficulties, in broad terms the law of contract is justifiable. More specifically, two kinds of justifications are typically given for the law of contract. The first, which is associated with ‘economic and other broadly ‘utilitarian’ approaches to law, justifies contract law on the basis that it facilitates mutually beneficial exchanges, and so promotes overall social welfare or social ‘wealth’ (broadly defined). The underlying idea is that where two parties freely agree on a contract involving, say, a simple exchange of money for goods, the seller does so because he thinks he will be better off with the money than with the goods, and the buyer does so because she prefers the goods to the money. Both parties thus emerge from the exchange better off (in one sense) than they were before, and since society’s wealth is made up of the total wealth of its members, even a simple exchange of this kind can improve social wealth. In short, contract law (and the officials needed to enforce the law) is a justified use of the state’s resources because it helps everyone to become better off. Exchanges, of course, need not involve contracts — at least if by contracts we mean arrangements in which one or more persons promise or agree to do something in the future. A simple barter or other simultaneous exchange, such as takes place at a supermarket checkout, where the customers unload their trolleys and hand over their money, typically does not involve a promise or agreement. In principle, such exchanges might therefore be regulated entirely by property law rules (specifying when the transfer is consensual, and thus valid), tort law rules (specifying when a transferor is liable for providing a defective good or making a false representation), and unjust enrichment law rules (specifying when a transferred benefit must be returned to the transferor). From an economic perspective, the primary reason a law of contract is needed is that most exchanges of any complexity cannot be performed simultaneously. One or both parties will have to perform in the future, which means that the other party has to have confidence that she will perform. Suppose that I want a special machine made to order for my factory. A manufacturer could make the machine, and then sell the finished product to me in a simultaneous exchange of machine for cash. But the manufacturer is likely to be worried that I might change my mind at the last minute, leaving him with a machine that is difficult to sell. I might also worry that the manufacturer will change his mind, and decide not to make the machine. Admittedly, there are many reasons aside from the law that each of us might keep to our agreement, such as our interests in our reputation or simply our sense of morality. Nonetheless, it is clear that the risk of non-performance will sometimes dissuade people from entering otherwise beneficial deferred exchanges. It is because of this risk that a law of contract is needed. The fundamental role of contract law, in the economic theory now being considered, is to facilitate the making and performing of deferred exchanges. The law fulfils this role in many ways, but the most fundamental is by providing remedies for breaches of contract, either in the form of orders that breaching parties perform or orders that they pay damages. Thus interpreted, contract law’s essential purpose is to secure cooperation in human behaviour, and particularly in exchange. In sophisticated modern societies this cooperation has led to a massive and elaborate system of credit and ‘credit’ is simply another word for ‘trust’ or ‘reliance’. In the simplest sort of case, where businesses provide goods or services on credit to consumers, they trust or rely on the consumer to pay, and in the meantime they allow the consumers to have the goods. Generally, the consumers will ultimately pay, but if they fail to do so some sanction is needed: the law of contract provides that sanction. So contract law ultimately provides the backing needed to support the whole institution of credit. A moment’s reflection is enough to show to what extent this is true not only in commercial matters, but in all walks of life. The value of consumers’ bank accounts, their right to occupy their houses if rented or mortgaged, their employment, their insurance, their shareholdings, and many other matters of vital importance to them, all depend on the fact that the law of contract will enable them to realise their rights. In the striking phrase of Roscoe Pound, ‘Wealth, in a commercial age, is made up largely of promises.’¹ The second general justification that is commonly given for the law of contract can be described more quickly. The individualist or ‘moral’ justification focuses not on the social benefits of contracting, but on the rights and duties of individual contracting parties. According to this view, when courts order that contracts be performed, the reason is that the defendants have duties, owed to the claimants (not society), to do what they contracted to do. And when courts order that damages be paid, the reason is not merely to encourage future contracting or to bring about any other social benefit, but to remedy the injustice caused by the defendant having infringed the claimant’s rights. In this view, the payment of damages reflects the idea that the defendant has wronged the claimant, and so must repair the harmful consequences of that wrong. Damages correct the injustice to the individual claimant caused by the breach. Of course, the defenders of this view do not deny that contracts are socially beneficial, and that contract law facilitates the making of contracts. But they regard these advantages merely as side-effects of an institution whose primary purpose is to ensure that justice is done between individuals. The economic and moral justifications each provide a plausible justification for the general institution of contract law and, as we shall see in later chapters, for many specific contract law rules. It seems plausible to suppose, therefore, that the best overall justification for the law of contract combines each of these accounts. The idea that contract law is justified on two grounds — an economic ground and a moral ground — is indeed a common conclusion. And as a matter of history, it is clear that lawmakers have been influenced by both grounds (and many others as well). But it is worth noting that many contract scholars are uncomfortable defending a ‘mixed’ justification of this kind. The reason is straightforward: the two justifications have opposite starting points. The economic view supposes that society’s interests take precedence over those of the individual, while the moral view supposes the opposite. A justification for contract law that simultaneously adopts both justifications thus might be thought to raise as many questions as it answers. ## 3. The Limits of Contract Law The moral and economic theories just described suggest answers to the most fundamental justificatory or normative question about contract law: why give legal enforcement to private agreements?2 But there is another normative question about contract law that is almost as important: Why are certain kinds of agreements not enforced? Why, in other words, are there limits to freedom of contract? It has never been doubted, of course, that there are certain categories of agreements that should not be enforced. In particular, it has never been doubted that courts should refuse to enforce agreements that involve illegal acts (e.g. agreements to sell prohibited drugs), agreements procured by unlawful means (e.g. agreements procured by fraud or a threat to commit a criminal act), agreements involving minors or the mentally incapacitated, and agreements made in social or domestic settings. This debate about the proper limits of freedom of contract is about whether it is proper for the law to refuse to enforce agreements for other kinds of reasons. More specifically, the question is whether courts should take into account factors such as: the perceived moral or social value of a contracted-for activity (e.g. paid-for surrogacy); the alternatives available to the contracting parties (e.g. where one party is a monopolist); the intelligence, sophistication, and independence of the contracting parties (e.g. where the contract arises from a door-to-door sale to an unsophisticated consumer); the fact that circumstances have changed since the contract was made (e.g. the cost of a manufacturer’s raw materials have tripled); and, perhaps most importantly, the basic fairness of contractual terms. Under a strict application of the classical notion of free-dom of contract none of these factors should matter – but the courts and legislature have never adopted this position. There are three main techniques that courts and legislatures have used to limit freedom of contract. The first, which focuses on the procedures for making contracts, is to expand the excuses available to defendants beyond the traditional (and relatively narrow) excuses of duress, misrepresentation, and incapacity. A recent example is the rule that guarantors are not liable on their guarantees if they were given as a result of the principle debtor’s wrongdoing (e.g. undue influence) in circumstances in which the creditor should have been aware that this might happen and where the creditor failed to take reasonable steps to prevent it happening. This rule effectively places creditors under positive duties to assist certain classes of guarantors. A second recent example is section 4 of the Consumer Protection (Cancellation of Contracts away from Business Premises) Regulations 1987, which gives consumers in cases of ‘doorstep sales’ a seven-day ‘cooling off period’ in which to change their minds. Overall, this first technique has been used relatively little in English law. In particular, and despite the efforts of Lord Denning, English law has never recognized a general principle holding that contracts procured by exploitative or ‘unconscionable’ behaviour are unenforceable. The second, more important technique by which freedom of contract has been limited is through rules that regulate the content of contracts. Broadly speaking, such rules operate by implying terms into specific categories of contracts or by prohibiting certain kinds of terms. An important distinction must be drawn in this regard between rules that imply mandatory or ‘non-waivable’ terms and rules that imply non-mandatory or ‘default’ terms. The latter, which are now found primarily in legislation, apply only insofar as the parties do not stipulate otherwise. For example, Article IV of the Carriage of Goods By Sea Act 1971 describes a long list of situations in which carriers are not responsible for the loss or damage of goods, while Article VI of the same Act makes explicit that shippers and carriers may waive Article IV’s exclusionary rule. Rules stipulating default terms are extremely common, but they represent a relatively minor inroad on freedom of contract. By definition, contracting parties can override default terms, at least if they are aware of them. Moreover, in many cases default terms give effect to understandings that are a real, if implicit, part of the parties’ actual agreement. In other words, default terms often merely confirm terms that ‘go without saying’ in an agreement. An example is section 27 of the Sale of Goods Act 1979: ‘the duty of the seller [is to] to deliver the goods, and of the buyer to accept and pay for them.’ More important in debates about freedom of contract are rules that imply mandatory terms into contracts or that prohibit certain kinds of terms or even entire contracts. English law has always contained such rules. Agreements not to marry and agreements to pay for sex, for instance, have long been unenforceable—though neither of the activities contemplated by such contracts are themselves illegal. So too, a substantively unfair contract has long been liable to be set aside if the disadvantaged party is ‘poor and ignorant’ (e.g. illiterate). But the number of such rules has increased dramatically over the past hundred or so years. Most of the increase is in the form of legislation designed to protect persons the law perceives to be vulnerable (e.g. consumers, employees). Such legislation is discussed in more detail later in this chapter. For the moment, two observations suffice. First, the amount and significance of protective legislation can easily be underestimated if one’s familiarity with contract law is limited to that learned in an introductory course on contract law. The most heavily regulated contracts, such as employment contracts, are usually discussed in detail only in advanced courses. Secondly, English law has been reluctant to impose or prohibit terms across the board, that is to say, for all categories of contracts. For example, a duty to act in good faith, which civil law jurisdictions imply into all contracts, is implied by English law only into certain categories of contracts (e.g. insurance contracts). Similarly, there is no general rule prohibiting unfair terms; nor (as was noted a moment ago) is there even a general rule prohibiting unfair terms that are obtained by exploiting a disadvantaged person’s vulnerability. The third and potentially most powerful technique for limiting freedom of contract is to impose not just a particular term into a contract, but to impose an entire ‘contract’. A long-standing example is the rule that common carriers (e.g. the post office) must accept goods tendered for transport. Admittedly, a common carrier’s obligation is not usually regarded as contractual. But rules of this kind are important when thinking about freedom of contract since their effect is to remove whole categories of transactions from the reach of contract law principles. Indeed, the reason such transactions are not regarded as contractual (or as only quasi-contractual) is that freedom of contract has been largely or entirely supplanted by other values. A large number of ordinary transactions are of this kind. For example, citizens are required to pay taxes whether or not they want to. The state, for its part, provides services such as education, hospitals, and garbage pick-up to everyone, even to those who would rather obtain such service by private contracts. Such transactions are outside the scope of this book. But they must be kept in mind when thinking about the importance and value our society accords to contract law and contract law principles. With these observations in mind, we can return to the question that was raised at the beginning of this section: why are certain kinds of agreements not enforced? One possible answer is that agreements are not enforced when the economic and moral (or ‘individualist’) reasons for enforcement (that were described in the previous section) do not apply. For example, it is sometimes argued that the primary aim of consumer protection legislation is the essentially economic aim of facilitating contracting. Consumers will be more willing to enter contracts, it is argued, if they can be confident that their contracts will not contain unreasonable terms. Likewise, individualist theories of contract sometimes explain the unenforceability of contracts to sell human organs on the basis that physical integrity is an ‘inalienable’ right, the kind of thing that cannot, or at least should not, be sold or exchanged. These explanations cannot be dismissed out of hand. But in most cases they are not the most obvious explanations for the kinds of rules we have been discussing. With respect to protective rules, the more obvious explanation is that such rules reflect basic notions of fairness. More specifically, they reflect, on the one hand, the idea that it is wrong to take advantage of another’s vulnerability, and, on the other hand, the idea that a person who has been taken advantage of deserves redress. As for rules that focus on the type of activity contemplated by an agreement (e.g. selling human organs, prostitution), the obvious explanation is that the law should not promote this activity. Thus, a common explanation for the prohibition on the sale of human organs is that the intangible value of life will be diminished if such sales become an ordinary practice. It should be apparent now why rules that limit freedom of contract are often controversial. On the one hand, the economic and moral arguments that justify enforcing contracts in the first place apply to agreements generally, including agreements that may be unfair or that may involve undesirable activities. The economic and moral arguments are closely linked, in other words, to the classical notion of freedom of contract. On the other hand, unrestrained freedom of contract appears inconsistent with basic notions of fairness and (for want of a better phrase) basic social values. ## 4. The Contested Ideal of Freedom of Contract Given what has been said above, it should not be surprising to learn that freedom of contract has enjoyed changing levels of support from courts and legislatures over the years. A brief history of these changes provides a convenient framework for describing in more detail some of the arguments for and against limiting freedom of contract, together with the legal changes that accompanied those arguments. The history of freedom of contract is important both for understanding why we have the laws we have and for understanding why we explain those laws the ways we do. ### The classical period: 1770-1870 The English law of contract has roots going back to the Middle Ages, but most of the general principles that underpin the modern law were developed in the eighteenth and nineteenth centuries. These principles and, perhaps even more, the general approach of the courts to contractual questions may be referred to as the traditional or classical theory of contract law. The eighteenth and nineteenth centuries, in particular the period from about 1770 to 1870, were the heyday of theories of natural law and the philosophy of laissez-faire, and many of the judges, who were largely responsible for the creation of the law of contract during this period, were considerably influenced by current thought. To the judges of this period, theories of natural law meant that individuals had inalienable rights to own property, and therefore to make their own arrangements to deal with that property, and hence to make contracts for themselves. The philosophy of laissez-faire, for its part, was understood to mean that the state, and thus the law, should interfere with people as little as possible. The function of the private law, in this view, was understood to be that of enforcing whatever private arrangements contracting parties had agreed upon. In general, the law was not concerned with the fairness or justice of the outcome, and the paternalistic ideas that were more common in earlier centuries came to be thought of as old-fashioned. In particular, many rules designed to protect those who entered into foolish and improvident bargains were whittled away by the judges. The judges were not even greatly concerned with the possibility that a contract might not be in the public interest (say because it restricted competition). The role of contract law was merely to assist one of the contracting parties when the other broke the rules of the game and defaulted in performing a contractual obligation. This is not to say the judges of this period were uninterested in justice: they thought that it was just to enforce contractual duties strictly. In this regard, the judges were part of a reform movement that was closely allied to the political movement towards democracy. The reformers of the 1830s proclaimed their belief that people could be trusted to look after their own interests, whether in the marketplace or at the hustings. It would thus be a mistake to think that the judges were indifferent to the public interest. They simply thought that, in nearly all cases, it was in the public interest to enforce private contracts. Indeed, it was widely thought that this was proved by fundamental economic principles. So great was the emphasis on agreement and the intention of the parties that the judges of the nineteenth century tended to elevate the law of contract into the central position in the law of obligations as a whole. This led to two related developments. First, there was a reluctance to impose obligations on those who had not voluntarily assumed them. The law of torts and the law of unjust enrichment remained relatively undeveloped during this period. And secondly, where obligations were imposed, there was a tendency to assume that they must be voluntarily imposed. So, for example, the judges denied that they had any power to make a contract for the parties. Courts were loath to fix sloppily drafted contracts, even if one party suffered greatly as a result. Similarly, they attempted to express the great bulk of the actual rules of contract law as depending on the parties intention. For instance, the rules according to which a contract might be set aside because the parties were mistaken or performance had become impossible were explained as doing no more than giving effect to the implied, but real, intentions of the parties. Thus, in the same way that John Locke had argued that political obligations derived their legitimacy from the social contract to which the people gave an ‘implied assent’, judges argued that private obligations mostly depended on private contracts to which they could find a real or implied’ assent. The picture just described is, of course, an over-simplification. Courts in this period retained the power in certain types of cases to declare contracts to be ineffective because they were against the public interest (‘public policy’ as it is called in the law of contract. As well, from a comparatively early date, legislative interference with freedom of contract began to play an important role. For instance, as early as 1831 the first of the modern Truck Acts was passed to protect employees from the practice of being paid in kind instead of in cash, and in 1845 the Gaming Act enacted that wagers should no longer be capable of enforcement as contracts. Overall, however, the amount of such legislation passed in the period from 1780 to 1870 was minimal in comparison with that passed in the subsequent hundred or so years. ### The period from 1870 to 1980 During the period from about 1870 to 1980 this picture changed. Specifically, there was a gradual decline in belief in freedom of contract and a reversion to paternalist and regulatory traditions that were in many respects closer to those of the seventeenth and early eighteenth centuries than that of the nineteenth century. Two main factors underlay this change. First, the idea that free and voluntary exchange was the secret to economic prosperity and, more generally, to a freer and more contented society, went into steep decline. In particular, the problem of ‘externalities’ was recognized. An externality is, roughly, a side effect of a free exchange that affects third parties. Nineteenth-century England saw massive externality problems arising from the industrial revolution—dirty towns, unsanitary accommodation, disease, pollution, and the like — all of which could be seen as external costs imposed by industry on third parties, that is, the public. Often these externalities were the result of private contracts, for example, for the rent of undrained lodgings into which the parties freely entered, and which they no doubt wanted to make. One kind of negative externality that was (and still is) of particular interest to contract lawyers is the reduction or prevention of competition in the market that can arise from an agreement to form a cartel or to engage in other restrictive trade practices. The parties to such a cartel might well benefit from such arrangement, but the general public rarely does. Secondly, the idea that ‘free and voluntary’ contracts lead to desirable or just results for the parties who choose to enter or not enter them was also challenged. Stated differently, it was argued that the classical contract law rules provided no guarantee that contracts were free and voluntary in any meaningful sense. On the one hand, it was pointed out that the ideal of freedom of contract means little to someone who lacks the means or talents to make contracts for food, clothing, shelter, or employment. To say that such a person chose not to make such contracts would be true only in a restricted sense. On the other hand, it was thought that the legal meaning of ‘free and voluntary provided no guarantee that the contracts that were made were fair or just. The main reason was that in many cases an individual or business had no real choice as to whom to contract with. This phenomenon was first observed with respect to the great railways and public utilities, which provided services that were increasingly regarded as essential, but over which there was little, if any, choice. But more generally, and as we shall see in greater detail in Chapter 8, between about 1870 and 1950 the British economy became a network of restrictive practices (i.e. cartels and monopolies). The result was that in respect of vast areas of life neither the individual nor the small business had much real contractual choice. Associated with this concern over lack of choice was the emergence and widespread use of the standard-form contract. Industrialization and the emergence of mass commercial market activity meant that most contracts ceased to consist of individually negotiated or custom-made terms. They came to be made on standard printed terms offered by large organizations, often on a take-it-or-leave-it basis. Thus, although nobody could compel passengers to travel by train, anyone wanting to do so had to accept the terms and conditions imposed by the railway companies. Similarly, if householders wished to obtain supplies of gas or electricity for their houses, they had to enter into contracts on terms laid down by the suppliers. And even when the goods or services in question were not controlled by a monopoly, the terms and conditions offered to the public were largely, if not exactly, identical. This was also true in many business dealings. Commercial agreements for the sale of goods would normally be recorded in ‘order forms’ or ‘acknowledgements’ with printed clauses; contracts for the carriage of goods by sea would usually be recorded in a printed ‘bill of lading’; insurance contracts were nearly always recorded in printed policies, and so on. Quite often, these forms were standard throughout an entire industry, thus depriving the consumer of the benefits of competition. For instance, standard building and engineering contract forms were (and are) drafted by the Royal Institute of British Architects and the Institute of Civil Engineers. For many lawyers, standard-form contracts, and in particular the exemption of liability clauses they normally contained, were clear proof that freedom of contract was a chimera. But lack of real choice was not the only reason for believing that many contracts were not free and voluntary. Even where a degree of choice existed, many contracting parties were unable to exercise that choice effectively because they did not understand the legal implications of their agreements. In this regard, standard-form contracts, in particular standard-form exemption (and limitation) clauses, were again identified as a major problem. Standard-form contracts typically contain long lists of clauses and conditions, often in small uniform type. Exemption clauses, which protect contracting parties from legal liabilities, are difficult for legally unsophisticated individuals to understand; individuals must know the law to understand their effect. Furthermore, it is often difficult to evaluate the practical significance of such clauses, even if one knows the law, since it is difficult to know how likely it is that the contract in question will be breached. ### The period from 1980 to the present During the contemporary period we have in effect two massive trends running in opposing directions. The first is a new trend towards a revival of early nineteenth century freedom of contract principles. Since 1980, England, like most Western democracies, has seen a resurgence of support for markets and for the traditional notion of freedom of contract. At the political level, the weakening and eventual dissolution of the former Soviet empire was undoubtedly a major factor in this shift. But at the level of contract law, the most important factor was probably the influence of a new generation of pro-market economists and economist-lawyers. Focusing on the relationship between legal rules and their economic effects, the argument of this group, in broad terms, was that the problems associated with markets were the result of too little, not too much, freedom of contract. More specifically, the main problem was identified as the anti-competitive practices that were rife throughout the British economy in the period around 1900-50. Thus, while it was acknowledged that unfair contracts might be concluded on the basis of standard-form contracts, it was argued that the underlying source of the unfairness was not the use of standard-forms, but, in most cases, the monopoly power enjoyed by the advantaged party. Standard-form contracts and take-it-or-leave-it offers generally are used for the simple reason that it is too costly to negotiate individualized terms in an age of mass contracting. The corner store operates on the same principle. If you do not like the terms, you simply go elsewhere. It is only when the potential purchaser cannot go elsewhere that a problem arises. Using similar logic, it was pointed out that exemption clauses serve a useful economic purpose. In a complex economy, one of the main purposes of a contract is to allocate risks — which is what exemption clauses do. In effect, such clauses specify which of the parties should obtain insurance for the relevant risk. Prima facie, there is no reason that the carrier in a delivery contract should always have the responsibility of obtaining the necessary insurance. The owner has better knowledge of what the goods are worth and may, in any event, already have insurance for other reasons.15 Thus, if the parties decide to allocate the risk of loss or damage to the owner (by an exemption clause) the courts should respect this choice. Competition has even been given as the solution to the problem that contracting parties often do not understand or even read exemption clauses and other complex contractual terms. The argument is that because profit margins in competitive markets are narrow, the vendors in such markets will worry about losing even a small percentage of their customers and, more generally, worry about their reputations. Thus, vendors will hesitate to impose unfair terms because of the fear of losing even the small percentage of customers who do read and understand the terms. And even where such terms are imposed, vendors will hesitate to enforce them for fear of damaging their reputations. One criticism of the classical notion of freedom of contract that the economists did not attempt to refute was that many of the opportunities in the market are available only to a wealthy minority. Most economists were not strictly concerned with this problem or regarded it as a necessary evil. But even those who did worry about inequality of resources generally took the view that this problem was better addressed by tax or subsidy programs, rather than by changing the rules of contract law. Prohibiting perceived unfair terms was said to do little to help the less well-off, since the ‘stronger’ party could always change other terms (in particular the price), or simply move into a different line of business. Thus, the effect of rent control, the economists argued, is that flats are allowed to become run-down or are just taken off the rental market. By distorting the market, everyone is left worse off in the long run. The overall conclusion to this line of argument was that contract law should focus on increasing the size of the pie available for redistribution, and that this is best done by enforcing agreements on the terms on which they are made. Of course, the claim that competition is the cure for all (or nearly all) problems is of little comfort if the economy is not actually competitive. It was thus crucial to the success of the economic argument described above that the English economy became immeasurably more competitive over the last half-century. Part of the reason for this change was the success of the competition and restraint of trade laws that were mentioned earlier and that have continued to receive strong support. But more important were structural changes that took place in the English and international economies. Local monopolies and cartels have been challenged by international competitors. Consumers, for their part, have become increasingly sophisticated, and consumer advocates, whether official bodies or simply the media, have become increasingly stronger. One consequence is that rather than trying to take away a consumer’s legal rights, many businesses freely expand those rights. The second, and opposite trend evident in the contemporary period is a continuation of the older movement, deriving from the late nineteenth century, away from freedom of contract and in favour of regulating the market. But it is noteworthy that the arguments usually now given in defence of intervention are different from those made in the earlier period. Rather than defending intervention on the grounds that consumers and small businesses are inevitably at a disadvantage when contracting with large commercial parties, and that standard-form contracts in particular are indicative of disparities in bargaining power, two other ideas have been put forward. Each has been influenced by the economic arguments described above (and each has been accepted by at least some economists). The first idea underlying the contemporary defence of intervention is that even if is true that markets have become more competitive, few if any markets are, or ever will be, perfectly competitive. Indeed, perfect competition is regarded more as a theoretical or abstract ideal than a real-world phenomenon. Even the smallest vendor usually possesses a degree of monopoly power. The corner store, for instance, has an effective monopoly over milk and eggs to the extent that local consumers find it too expensive or time-consuming to travel to the next nearest store. A related point is that no amount of competition can prevent what economists call ‘situational