This paper discusses the possibility of applying the insights provided by the doctrine of the just price to the current debate about contractual justice. After summarizing the just price doctrine and addressing the objections traditionally raised against it, the paper identifies the role that just price theory could play in contemporary contract law and suggests a general standard of proportionality in exchange as a constraint on the full application of freedom of contract.

Keyword: Contract Law, Just Price, Contractual Justice

Sommario/Summary:

1. Introduction - 2. The doctrine of the just price - 3. Criticism of the doctrine of the just price. Some replies - 4. Just price doctrine and procedural fairness - 5. Towards a role for the just price doctrine in contemporary contract law - 6. A few examples - 7. Conclusions - NOTE

1. Introduction

While issues of justice are at the center of the international scholarly debate on contracts,[1] both black letter law and legal scholarship tend to disregard the doctrine of the just price as nothing more than a relic of the Middle Ages. In accordance with the approach adopted by the EU Directive on Unfair Terms in Consumer Contracts, the most recent model rules of European private law explicitly exclude price adequacy from the unfairness test provided by the provisions dealing with unfair contract terms.[2] Similarly, in the United States, sec. 79 of the Restatement (Second) of Contracts specifies that "if the requirement of consideration is met, there is no additional requirement of equivalence in the value exchanged." Legal scholars substantiate this approach with various arguments. In his seminal paper on Vetragsfunktion und Vertragsfreiheit, German law professor Ludwig Raiser identifies the flaw of the just price doctrine in the contradiction between its implicit claim to measure the objective value of goods and the dynamics of modern free markets.[3] Following a long standing tradition, other writers consider the notion of equality in exchange to be at odds with freedom of contract: because the free will of the parties is the best judge of their interests, anything freely agreed upon is just by definition. As the French philosopher Alfred Fouillée famously puts it, "qui dit contractuel, dit juste."[4] A concise synthesis of the latest developments is rendered by Italian law professor Natalino Irti: "prices are neither just nor unjust. Rather, the justice of the price lies in the lawfulness of its formation."[5] Reality, however, reveals a more complex picture. Empirical economic research shows that concerns of price fairness commonly motivate the behavior of firms and individuals.[6] Likewise, it is widely recognized that, while freedom of contract alone ostensibly informs court decisions, judges in fact attempt to uphold substantive standards of justice.[7] Even in positive law, freedom of contract is far from the only determinant of contract price. Usury laws, the remedies provided for gross disparity by contract law in Continental Europe, and the doctrine of unconscionability in North American common law are clear signs of a persisting principle of equality in exchange which can be traced back to the doctrine of the just price.[8] From a different perspective, recent events illustrate the possible shortcomings of absolute private [...]

2. The doctrine of the just price

2.1. The Aristotelian-Thomistic Origin Even though both Roman law[10] and the Talmudic literature[11] dealt with the issue of price adequacy, the doctrine of the just price traces its lineage to Aristotle'sNicomachean Ethicsand to Thomas Aquinas'Summa Theologiae. In the framework of Aristotle's virtue ethics, Aquinas identifies equality as the requisite for commutative justice in mutual dealings. The doctrine of the just price is concisely outlined with reference to the sale contract. After recognizing that "buying and selling seem to be established for the common advantage of both parties", Aquinas contends that: "whatever is established for the common advantage, should not be more of a burden to one party than to another, and consequently all contracts between them should observe equality of thing and thing. Therefore if either the price exceeds the quantity of the thing's worth, or, conversely, the thing exceeds the price, there is no longer the equality of justice: and consequently, to sell a thing for more than its worth, or to buy it for less than its worth, is in itself unjust and unlawful."[12] While the Summa Theologiaedoes not articulate what exactly comprises a just price,[13] in his commentary on Aristotle's Nicomachean Ethics Aquinas explains that the value of things "has a reference to human need." Since things are evaluated "according as man stands in need of them for his own use," the "one standard which truly measures all things is demand (indigentia)"[14] and demand is conventionally measured by money. Therefore, according to the majority of scholars, "the normal measure of something's value [is] the price it would currently fetch in the market (secundum communem forum), i.e., in deals between any willing sellers and buyers in the same locality and time frame."[15] Aquinas clarifies his approach with two important qualifications. Openly distinguishing between ethics and law, he limits the scope of the theory of the just price as a legal doctrine. Since "human law is given to the people among whom there are many lacking virtue, and it is not given to the virtuous alone," it "suffices for it to prohibit whatever is destructive of human intercourse, while it treats other matters as though they were lawful, not by approving of them, but by not punishing them."[16] Aquinas also recognizes the need for a flexible application of his doctrine: "the just price of things is not fixed with mathematical precision, but depends on a kind of [...]

3. Criticism of the doctrine of the just price. Some replies

3.1. The Modern Attack against the Doctrine of the Just Price           The first explicit attack against the doctrine of the just price comes from Christian Thomasius (1655-1728) in De aequitate cerebrina, a book published in 1706 criticizing the Roman law on gross disparity.[32] Thomasius's main argument is twofold. First, he identifies the fallacy of the just price doctrine in the belief that "the prices of things originate from a natural comparison between them and are nearly an intrinsic quality thereof."[33] Then, after claiming that "human eagerness (cupiditas) drives the price of things", Thomasius states that "in contracts the prices of things depend only upon the agreement of the parties" and - as far as they act "in the state of natural freedom" - "no just price exists prior to an agreement."[34]           Thomasius' arguments, however, are hardly original. In keeping with his radical dismissal of Aristotelian virtues theory and emphasis on self-interest and free will, Thomas Hobbes (1588-1679) had already suggested a similar approach in a famous remark in his Leviathan,published in 1651: "The value of all things contracted for is measured by the appetite of the contractors, and therefore the just value is that which they be contented to give."[35] The same argument was put forward in his earlierDe cive(1642) as a critique of the Aristotelian conception of justice: "But what is all this to Justice? For neither, if I sell my goods for as much as I can get for them, do I injure the buyer, who sought, and desired them of me? Neither if I divide more of what is mine to him who deserves less, so long as I give the other what I have agreed for, do I wrong to either?"[36]           In rejecting the theory of the just price, both Hobbes and Thomasius start from the same philosophical assumptions. In the aftermath of the modern dismissal of metaphysics, discourse on moral philosophy began to exclude the problem of identifying the telosor "end" of man and the notion that the virtues are a necessary means of helping him reach that end.[37] In this changed context, contracts are simply the means to reconcile conflicting self-interests according to the respective wills of the contracting parties.                  3.2. A [...]

4. Just price doctrine and procedural fairness

According to a common line of reasoning, the flaws of a model of contractual justice based solely on free will can be corrected by identifying a set of conditions under which freedom of contract could be effective. Such a view asserts that the task of the law is to remove the obstacles that inhibit equality between parties, thus assuring an "appropriate initial status quo," which is traditionally identified with John Rawls' "principle of justice chosen behind the veil of ignorance."[57] Here, a standard of procedural fairness replaces one of substantive fairness.           A recent example of this approach can be found in the Draft Common Frame of Reference ("DCFR") prepared by the Study Group on a European Civil Code and by the Research Group on EC Private Law[58]. Having determined that "justice is hard to define, impossible to measure and subjective at the edges," the DCFR identifies several principles of contractual justice - such as "not allowing people to rely on their own unlawful, dishonest, or unreasonable conduct" and prohibiting parties from "taking undue advantage"[59] - as means to guarantee a genuine freedom to contract. By the same token, the DCFR addresses price justice only from a procedural perspective: while "the adequacy of the price to be paid" is excluded from the unfairness test, except when the contract terms are not "drafted in plain and intelligible language" [sec. 9:406(2)], an extensive set of remedies is provided for situations that may lead to unjust prices, among which are reliance on incorrect information given by a party (sec. 7:204), fraud (sec. 7:205), coercion or threats (sec. 7:206), and unfair explotation of contractual power (sec. 7:207).           Even though, as demonstrated by the provisions in the DCFR, such an approach often seems to reach the same outcomes as one based on the doctrine of the just price,[60] a model grounded in substantive justice is more complete. Any system of social control, including a procedure aimed at assuring the justice of transactions, needs to be legitimated, and this legitimization can only be found in a substantive value of the system.[61] Explicitly recognizing the specific substantive value that legitimates such a system, therefore, allows for more transparency and control, while also being more effective in practice, particularly in borderline cases where transparency and control are most [...]

5. Towards a role for the just price doctrine in contemporary contract law

A model of contract justice based on substantive price fairness requires the clarification of two issues: the relationship between this model and the market mechanism for price formation, and the role played by the law in ensuring price adequacy. While just price theory suggests that prices should be evaluated according to a normative criterion beyond the mere outcome of the economic process, the market price can nonetheless be considered a good proxy for the just price. Normal market conditions embody many of the factors affecting the moral judgment of price justice: as German philosopher Peter Koslowski has noted, "the conditions of the market price formation, the market process and price formation by competition are themselves constitutive criteria of the assessment of the just price". For this reason, "the assumption can be made initially, until the contrary is proven, that the market price is just."[68] Consequently, the legal requirement of a just price does not replace the market mechanism but rather works as a normative criterion to evaluate whether the individual price conforms to the generally established market price. Where objects are unique or markets are so evidently imperfect so as to make the market price indeterminable, the evaluation of price justice resorts to the specific criteria developed by the later Scholastics: features of the goods exchanged, the cost of production, the mode of selling, and the supply of money. Such a relationship between the just price and the market price illustrates that the proposed approach works as an external constraint to freedom of contract, not as a paternalistic dictation of the price to the parties. Per Koslowski's salient observation, "just price theory does not formulate positive norms, but negative norms of price formation, economic and social minimum requirements that the subjectivized price system must be able to satisfy."[69] Moreover, while from a purely ethical perspective the model could lead to a case-by-case evaluation of price justice, albeit one conforming to market price, as a legal doctrine the insights of the later Scholastics are limited by the specific goals of the law and by the need for efficency in its adjudication. Recalling the aforementioned distinction between law and ethics by Aquinas and his note that it "suffices" for the law "to prohibit whatever is destructive for human intercourse," it is therefore easily understandable why a long-standing tradition - from the Roman [...]

6. A few examples

Hard cases on contractual justice have been proposed since antiquity. Augustine of Ippo mentions the "case where a manuscript was offered to a man for purchase, who perceived that the vendor was ignorant of its value, and was therefore asking something very small."[80] Lessius addresses the problem of "buy[ing] a precious good as if it were a cheap one."[81] An example similar to Augustine's, involving a painting, is more recently offered by Italian law professor Vincenzo Roppo in order to highlight the key differences in the various conceptions of contractual justice among European legal systems.[82] The problem of the grossly underpriced good is typically approached according to notions of procedural justice, inquiring whether the buyer is obliged to make a disclosure to the seller.[83] But the tenets of the just price doctine suggest an easier solution. The same reasons that justify legal intervention in the case of defective goods also apply here, where the problem is reversed. In both cases, in Lessius' terms, "the contract does not preserve equality," and in the case at hand "the seller does not intend to make a donation with respect to the sum exceeding the just price. Quite the reverse, he wants to sell the good completely and get a just price in exchange for it."[84] The just price in this case can be determined by integrating the views of the late Scholastics with the insights of contemporary scholarship distinguishing between information resulting from a deliberate search and information acquired casually[85]. Because the expert buyer recognizes the value of the manuscript by virtue of his deliberately acquired expertise, the cost of producing this expertise should be taken into consideration when calculating the just price. Therefore, while a price adjustment should be applied, this adjustment should be such as to give a distribution of the value added by the buyer's expertise which compensates him for the costs borne. Executive remuneration in financial institutions is a much more recent and controversial issue. Traditionally, this problem has been addressed by allowing freedom of contract in arm's length negotiations between informed parties and providing various procedural checks to manage possible agency problems and conflicts of interest. Mechanisms of risk management, corporate governance safeguards, and the imposition of fiduciary duties on directors are common legal strategies employed to this end[86]. However, the fact that [...]

7. Conclusions

"I see us free, therefore, to return to some of the most sure and certain principles of religion and traditional virtues - that avarice is a vice, that the exaction of usury is a misdemeanour. [We] shall once more value ends above means and prefer the good to the useful"[98]. John Maynard Keynes' prediction in his Economic Possibilities for our Grandchildren is followed by an immediate note of caution: "the time for all this is not yet". For "at least another hundred years" only "avarice and usury and precaution" can "lead us out of the tunnel of economic necessity into daylight"[99]. As this paper has tried to demonstrate, the doctrine of the just price takes a different approach. Even in a context which is not yet - and may never be - out of the tunnel of economic necessity, the just price theory suggests that ends already have the capacity to shape means and, more specifically, the content of contracts. Once again, contract law shows it capability of reflecting "the fundamental tension of the man-as-he-is into man-as-he-could-be-if-he-realized-his telos"[100]. Many aspects of this topic require further discussion. The relationship between private and public enforcement of the legal requirement of equality in exchange[101]. and the impact on social justice of legal norms based on commutative justice[102] are some of the most delicate issues. Recent developments in virtue jurisprudence reflecting an attempt to break free of the dichotomy between the consequentialism of law and economics and the deontology of rights-theories[103] confirm, nonetheless, that this is a path worth following.

NOTE