The Economics of Contracts: Theories and Applications

By Eric Brousseau; Jean-Michel Glachant | Go to book overview

6
The contract as economic trade
Jacques Ghestin

1 Introduction

1.1 A contract as a legal concept

There is no such thing as “contractual pith and substance” (Truchet 1987) or “contract by nature” (Sinkondo 1993). Therefore, we must abandon any attempt to construe the contract in terms of a generalized abstraction, and accept rather that we must reduce it to a more modest, but precise, notion, that of a legal concept, whose only purpose is functional (Sacco 1999). 1 Moreover, this notion pertains only to a legal category, necessarily incomplete as an intellectual construct because of its diversity and inconsistency (Rouhette 1965), but nonetheless identifiable and distinguishable from other categories. This requires, however, that all contracts share at least one characteristic separating them from any other legal category and allowing them to be identified with certainty.

Sacco (1999) distinguishes between two different ways of defining a contract. The first consists of naming one essential element shared by all contracts and necessary for their existence. This aspect may not suffice to guarantee their recognition as contracts by substantive law, however. Additional features may be required to make contracts legally binding. The second way of defining a contract lists all the elements required for it to be recognized as such under substantive law – which may, in fact, be differentiated from the conditions under which it is enforceable. This route generates multiple solutions as to the domain of the contract. Under common law bequests are not contracts, nor is bailment, nor actions that transfer property or create securities, except in the case of the sale of movable property. In German law, the key element is the legal transaction, Rechtgesch¨aft, since the contract, Vertrag, is defined in the B¨urgerliches Gesetzbuch (BGB) as a bilateral legal transaction. The contract transfers properties or creates securities only over the delivery of movables or the creation of a notarized deed in the case of immovables. In French law bequests are contracts, but they must assume certain forms to be recognized

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