§1. In a summary view of the civil order of society, as constituted in accordance with the individualistic ideal, performance of contract presents itself as the chief positive element, protection of life and property being the chief negative element. 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 modern industry cannot be introduced among such beings. Suppose contracts freely made and effectively sanctioned, and the most elaborate social organisation becomes possible, at least in a society of such human beings as the individualistic theory contemplates---gifted with mature reason, and governed by enlightened self-interest. Of such beings it is prima facie plausible to say that, when once their respective relations to the surrounding material world have been determined so as to prevent mutual encroachment and secure to each the fruits of his industry, the remainder of their positive mutual rights and obligations ought to depend entirely on that coincidence of their free choices, which we call contract. Thoroughgoing individualists would even include the rights corresponding to governmental services, and the obligations to render services to Government, which we shall have to consider later: only in this latter case the contract is tacit. According to this view, an enlightened Englishman is a person who resists the
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What we have now to do is to discuss the chief conditions by which the legal enforcement of ordinary civil contract has to be restricted, in order that the function assigned to it in the individualistic ideal of society may be performed most effectively, and with least attendant mischief. But, before we proceed to this, we must notice an important ambiguity in the meaning of the term contract. In its widest sense the (legal) term contract denotes any act in which ``there is a concurrence of two or more wills in producing a modification of the legal rights of the parties concerned.'' It includes, therefore, those transfers of property by consent which were mentioned in the preceding chapter; which, of course, affect not only the mutual legal relations of the contracting individuals but also their relations to other members of the community. ``Thus, if a man goes into a shop and buys a watch for ready money, a contract has taken place. The watchmaker and his customer have united in a concordant expression of will, and the result has affected once for all their legal rights.'' Previously to the action all other members of the community were legally bound to abstain from handling the watch without the watchmaker's consent, and to compensate the latter for any injury that might be caused to the watch through their negligence; henceforward it is the customer whose consent is required, and to whom compensation will be due. In short, the agreement of these two persons has affected what jurists call their ``rights in rem''; i.e. rights corresponding to obligations imposed on other members of the community generally.
But in its narrower and. more usual sense the word contract denotes an agreement that only confers what jurists call a ``right in personam''; i.e. a right corresponding to an obligation imposed only on a particular individual. E.g. ``Suppose that instead of the instantaneous sale of the watch, the agreement has been merely for its purchase at a future day''; in this case there is a contract that does not transfer the ownership of the watch, but merely imposes on the watchmaker an obligation to sell the watch at the time and for the price agreed upon, and gives the customer a corresponding right, capable of being enforced against the watchmaker, but not directly affecting his legal relations with other persons.
Now, from the point of view of formal jurisprudence the difference between the two kinds of agreements is doubtless fundamental. But in a general discussion of the functions of government, the distinction appears to me to have only subordinate and secondary importance. We have already had occasion to notice that if rights in personam are valuable and transferable, they come to be regarded for practical purposes as a kind of property: under ordinary circumstances, my control over ``money in the bank'' being practically as complete as my control over money in my purse, I naturally think of the two moneys as property of the same kind though differently situated: it is indifferent to me that in the former case my legal right only consists in an obligation imposed on the banker to pay me coin or bank notes on demand, while in the latter case the world at large is under an obligation to refrain from meddling with my sovereigns. And, speaking more generally, we may say that, from our present point of view, the resemblances between (1) sale or other agreement by which property is transferred, and (2) an agreement giving the legal right to a future transfer of property or to some other service, are more important than the differences. In the most important cases of either---and those to which our consideration may conveniently be limited in the first instance---there is a transfer of utility, from A to B, in view of a corresponding transfer of utility on the other side; and not only are the general grounds of expediency for giving legal force to such agreements mainly the same in both cases, but the special conditions under which it is inexpedient to give them such validity are also to a considerable extent similar.
It will therefore, I think, save trouble to direct attention first to the conditions of valid exchanges of utility which are in some degree common to the two cases: and then consider the conditions peculiar, from the nature of the case, to agreements to which the term contract is more ordinarily limited,---i.e. in which the utility that one of the parties agrees to transfer is a future service.[Back to:] [Elempol, Chapter 5, Section 6]