This article has been written by Rajshekhar Bose, pursuing the Diploma in International Contract Negotiation, Drafting, and Enforcement Course from LawSikho.

This article has been edited and published by Shashwat Kaushik.

Introduction

Contracts conventionally are treated as laws that enforce debts, meaning a contract that requires one party to pay a specific amount to another in consideration of any material thing or any service. However, in modern times, this view of considering a contract as a debt has been changed and it is now regarded more as an agreement. In modern days, a contract is considered more as a facilitator of agreements, as it provides a framework for individuals and business entities so that their actions can be coordinated as per the requirements, allowing them to achieve their desired objectives.

Shift of contract law from a law of debt  to a law of  agreement

The statement reflects a shift in the perspective in which a contract law is viewed. Conventionally a contract is considered as a way to enforce debts, which states that if a party promised to do anything in exchange of any consideration to another party, that party will be obliged to do that act, which means traditionally a contract  is considered as a debt or obligation. However, the contract law in the modern days is considered as a tool for:

Agreements

A contract in the modern days is considered as an agreement between two parties that enable them to coordinate actions and get their desired goal that they cannot do on their own. The contract laws in the modern days empower parties to rely on promises that are made by the two parties, which induce the parties to take such actions from which both the parties can get benefits. The focus on agreements clearly reflects the increase in importance of contracts in modern day’s complex business environment. The dependence of business entities on contracts is to coordinate and achieve the desired objective of the business.

The key points that reflect that the concept of considering contact as a law of debt has been shifted and in modern days, contracts are considered an agreement, are discussed below:

Shifts from debt to agreement: In the modern days, contracts are not made in such a way that forces one party to be obligated to another party but they place more emphasis on enabling one party to rely on the promises of another party.

Empowerment

Contracts in the modern days allow the parties to get the second party to work towards a common objective. A contract in the modern days empowers both parties to work for a common objective and not enforce a debt on the parties to merely perform the duties that they are bound to do for entering into the contract.

Facilitation

The modern contracts are prepared with the objective of creating a framework for projects that are complex in nature by giving a clear overview of the expectations and the outcomes from such expectations.

This shift in the concept of the contract laws from debt to agreement enhances the growth of business endeavours that are complex in nature and require planning and collaboration.

In modern days, contract law is mainly considered a law of agreement and not a law of debts for the following reason:

Contracts not only create debts but it is an obligation

A contract establishes a legally binding relationship between parties, outlining their respective promises and obligations. This agreement goes beyond mere monetary transactions, encompassing the exchange of services, goods, or even commitments to perform specific actions in a predetermined manner. The fundamental principle underlying contract law is the enforcement of these promises.

When a party fails to fulfill their contractual obligations, they are said to have breached the contract. In such cases, the non-breaching party has the right to seek legal remedies. One option is to compel the breaching party to carry out the promised action, ensuring that the terms of the contract are honored. Alternatively, the non-breaching party may seek monetary compensation for the damages incurred as a result of the breach.

Contract law plays a vital role in maintaining fairness and accountability in business transactions. It offers a framework for resolving disputes and ensures that parties are held responsible for their actions. By providing legal recourse for breach of contract, contract law encourages parties to honor their commitments and promotes trust and cooperation in commercial interactions.

Moreover, contract law protects the rights of both parties involved in an agreement. It establishes clear expectations and delineates the consequences of non-performance, enabling parties to make informed decisions when entering into contracts. This legal framework fosters transparency and predictability in business dealings, reducing the likelihood of misunderstandings and conflicts.

Contracts can be preceded by debts

In many cases, it has been observed that debts exist before a contract is created. For instance, if anyone borrows money from another individual, then the person who borrowed the money will have a debt that he has to repay. The lender later decided to formalise the repayment terms in a contract, but in this case the debt preceded the contract.

This change in perspective emphasises that contracts in the modern days are mainly focused on creating a structure for voluntary exchange that ensures that both parties of the contract get the same opportunity to establish their rights. In the modern days, the contracts are not only focused on collecting the money owed, but it also gives importance to enforce the predefined actions that are mentioned in the contract to fulfil the expectations. It can be said that debts can be a part of the contract but in a broader sense, it can be said that contracts in the modern days govern the agreements and also ensure the enforcement of the agreement.

On this statement, one of the best explanations given by Jed Lewinshon in his article is that he explains the concept of exchange in the contract law without giving importance to the motivation that the promisor has and states that this change from giving importance to the doctrine of consideration in the late nineteenth century to a focus on giving importance to compel a return performance was a major mistake. He gives more focus on the theory of exchange rather than promises, which is very relevant in the modern decades. His theory lays the framework for a more clear understanding of the concept of exchange in a contract.

In the modern days, most of the scholars explore the theoretical concept of contract law that gives more focus on promises as a concept that is morally acceptable and social practice. In the last decades, more focus has been given to the exploration of the correspondence between the legal rules and the existing moral and social practices. In contrast to that, Jed Lewinshon in his very popular article on the consideration doctrine very rarely mentions promising; instead of that, he gives more importance to another pre-legal concept that is “exchange.”

There is no argument in stating that the doctrine of consideration deems a promise that is eligible for enforcement when such promise, in some sense, has been provided in exchange of something else. This means that a promise that has been given as a mere gift cannot be enforceable by law. The concept of exchange, although being the most important factor in contract law but unlike promise, received very little analysis both in contract theory as well as in philosophical literature.

What exchange exactly means and to what extent the consideration doctrine tracks the pre-legal concept of exchange; as consideration is the main line of separation between an enforceable promise and an unenforceable promise, the answer to the question what exchange exactly means will give the answer about the need of the contract law. The philosophical treatment of exchange will fill this gap.

In his article, Lewinshon figured out a change in the definition of consideration that happened suddenly at the end of the nineteenth century. Most of the authors of that time, like Oliver Wendell Holmes and Christopher Columbus Langbell started to define the doctrine of consideration in terms of bargained for exchanges, which eventually means that a promise is given so that it induces a return performance or promise.

As per Lewinshon, this concept of exchange is different from the concept that had informed the doctrine of consideration before Holmes and Langbell. Earlier, the concept of remuneration was included in the concept of exchange, which means the promised performance of one party is to settle the debt of another party, but it does not require that a said promise should be encouraged by a desire for a performance or return promise (Bridgeman, C., 2019).

In order to describe this shift, Lewinsohn considered three main tasks: The first task that he considered is that he argues that the motivational concept of exchange is not in line with many details of the doctrine of consideration, which becomes one of the reasons for different doctrinal problems. The second one, Lewinsohn, seeks to explain the concept of exchange without referring to the idea of reciprocal inducement or any point that is related to the motivation of the promisor. Thirdly, the author, on the basis of a not-so-strong concept of exchange, gives a brief normative defence of the doctrine of consideration. As per Lewinsohn, the justification of the doctrine of consideration is not justified on the basis of the promises to which it applies, but on the basis of the promises that it screens out, that is the vast majority of agreements among the intimates. He argues that the main reason for which he exempted these latter agreements from legal enforcement was mainly due to social interest. He justified the doctrine of consideration by protecting agreements among loved ones from being treated like payments for services.

Conclusion 

Considering the above points, it can be concluded that at least in the twentieth and twenty first century, a contract law can be considered as a law of empowerment. A contract law can be considered a tool that induces one person to work towards one’s own ends, and the modern doctrine of consideration particularly selects such promises that find to do so. This view of contract law postdates the view of conventional authors like Langdell and Holmes and makes Levinsohn’s theory more popular and relevant in the modern days. 

References 

• Nazzini, R. ed., 2024. Construction Law in the 21st Century. Taylor & Francis.
• Spooner, J., 2024. Contract Law When the Poor Pay More. Oxford Journal of Legal Studies, 44(2), pp.257-285.
• Domino, J.C., 2024. The Right to Privacy in Texas: From Common Law Origins to 21st Century Protections. Lexington Books.
• Bridgeman, C., 2019. Twenty-First-Century Contract Law Is a Law of Agreements, Not Debts: A Response to Lewinsohn. Yale LJF, 129, p.535.