Updated: Jun 8
Written by: Shannia Yesenia
A contract is likely the most amicable legal concept known to society, as it is an essential part of a nation's political and economic life. Agreements are made based on human freedom, as the implementation of human rights. The principle of freedom of contract in contract law originates from the individualist notion of creating free-market economic politics to pursue individual welfare.
So how exactly does the state insert itself into contract making?
Each country generally follows two legal systems; the common law and the civil law. The state's role in contract making will depend on which systems each state decides to use. Common-Law bases the court's decision as to its legal source. Meanwhile, the Civil Law legal system adheres to the law's codification as its dominant legal source.
The main difference between the two systems is that in common law countries, case law is of primary importance, whereas in civil law systems, codified statutes predominate. But these divisions are not as definite as they might seem. Many countries use a mix of both common and civil law systems. The differences stated will also show how the state has a say in contract making based on what system is used
The state seems to be much more involved in contract making when it comes to the civil-law system. Using methods such as going through legislatures and courts, using a much more advanced approach in supplying and applying the proper terms of an agreement, to ensure consent with a more extensive understanding of social values.
The state is also willing to punish any violation, that might happen by giving drastic punishments such as: enforcing penalty clauses, granting specific performance, and making it harder to let go of contractual responsibility. in opposition to the common law system, which uses a narrower approach where legislatures and courts are not as willing to insert themselves into contract terms, but will still be there to offer a helping hand towards disgruntled parties if a situation comes where voluntary performance is not in the offing.
The state plays a different role in each system, with it having a bigger impact on countries that adheres to the civil law system rather than common-law.
As a country that applies the common-law, India is more likely to use the court’s decision and tradition that evolved from the precedents used by past judges to solve problems rather than having the state involved. The Specific Relief Act,1963 is one example of how this applies; The Specific Relief Act, 1963 is an Act of India's Parliament utilized to resolve a person's civil or contractual rights if a violation happens. The main purpose of this act is to ensure the people of their rights, if there is any punitive nature of the case, then it may be established for proving the same. The Specific Relief Act itself has been used in several cases such as the East India Hotels vs Syndicate Bank (1991) case, the Hungerford trust vs Hardas air (1972) case. the J.P Builders V/S A. Ramadas (2010) case, etc.
In conclusion, common-law countries prefer to use methods that were previously applied in certain cases rather than having the state directly involved in their problems, they use the judges and courts as an intermediary between the state and the people as oppose to civil-law countries who would rather have the state be directly involved in their cases.
Mariana Pargendler, Role of State in Contract Law,2018, https://cpb-us-w2.wpmucdn.com/campuspress.yale.edu/dist/8/1581/files/2018/02/143_The-Role-of-the-State-in-Contract-Law-2416e28.pdf
Diva Rai, Introduction to the Specific Relief Act, 1963, April 11 2020, https://blog.ipleaders.in/introduction-to-the-specific-relief-act-1963/
Siddharth Ratho, Kshama Loya Modani, et.al, 13 November 2017, Implying Terms Into A Contract? Supreme Court Sets Contours, https://www.mondaq.com/india/contracts-and-commercial-law/645868/implying-terms-into-a-contract-supreme-court-sets-contours