• As the term is understood in both the French and the common law traditions, “contracts” represents the highest achievement of the liberal theory of law.

• Independent parties come together and make a deal. They act voluntarily and choose their obligations. No one is bound by something not agreed to.

  • Yet, once two or more parties do make an agreement, subject to only a few limits, the law will enforce it between them.

  • At this theoretical level, each person has an equal power to create the rules the law will enforce between them, without regard to whether they were born rich or poor, or one race, gender, religion, or class or another.

• A valid contract is effectively a law created by the parties to the contract.

  • This relationship of the free will of a party to the creation of laws binding the party is surely the reason why the contract is a dominant metaphor in explaining the relationships between governments and their subjects or citizens in liberal society.

  • There are limits also to the freedom of contract, particularly when the parties do not have similar capacities of understanding, negotiation, or bargaining power, but also when the promises the contract would enforce are illegal or so immoral that to enforce them would violate public policies enshrined in law.

  • This idea that contracts are a private source of law has many implications, not only in that the parties alone (within limits) determine their legal obligations but also in the manner in which the law interprets the language according to which those obligations were created. In their written form, contracts are subject to interpretation not unlike statutes.

• Contracts, properly made, take the place of the law between the contracting parties.

  • The parties actually write their own law.

• The rules of contract formation in the major legal systems of the world are much the same, with all systems requiring an offer and an acceptance.

Offer and Acceptance

• All the details of offer and acceptance are spelled out in the Restatement of Contracts, a summary of the basic common law doctrine prepared by the American Law Institute.

• German law defines a contract as a two-way commitment to be bound.

  • As Germans define the concept of “contract,” it includes a transfer of property, as well a promise to do so in the future.

Consideration

• The distinguishing feature of the common law of contracts is its third factor, called “consideration.”

• The basic idea of consideration is that the law should protect only bargains that benefit both sides.

  • The implication is that a promise to make a gift should not be enforced (though an actual gift is valid).

• No one can bind himself by a unilateral act.

• At common law, an offer could not be binding unless the offeree paid something to make it binding and thus converted the offer into an option contract.

• To constitute consideration, a performance or a return promise must be bargained for.

  • A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise.

  • The performance of a return promise may be given to the promisor or to some other person. It may be given by the promisee or by some other person.