Concept

Regulation and Contract Law – A Contradiction?

Contract law is characterized by the stat pro ratione voluntas principle. Party autonomy and freedom of contract, both fundamental values of our private law system, allow individuals to prioritize subjective will over objective reason and externally imposed values. However, even before the codifications of the 19th century, this liberal-individualistic understanding of private law was under scrutiny. At that time the discussion focused on whether private law should (also) pursue a 'social task’ and set limits to private disposition. This discussion was reflected in a handful of legal provisions limiting contractual self-determination in cases such as immorality, violation of the public order, or exploitation of the other party.

However, the insight that formal freedom of contract alone cannot ensure substantive fairness shaped contract law making in the European context during the 20th century. By way of introducing disclosure duties, mandatory or partially mandatory norms, form requirements, or by relaxing the pacta sunt servanda principle legislators aimed at promoting a more equitable balance of conflicting interests. The ultimate goal was to align with the contractual imperative of distributive justice. Public welfare goals, however, were not pursued through such legislation – at least not overtly.

From the 1980s onwards, legislators faced diverse challenges due to phenomena such as privatization, the liberalization of world trade, globalization, and digitalization. The integration of markets increasingly shifted rule-setting powers to international or supranational institutions and to regulatory authorities. This led to an increased reception of new legal concepts and regulatory approaches, driven also by various legal harmonization projects. The dominant goal became the functioning of the global market. The hitherto relatively value-neutral private law, serving as an infrastructure for contractual self-realization, was increasingly shaped by the welfare goal of preventing market failure, and regulation of markets based on the principle of efficiency.

This shift in focus was also reinforced by research in the fields of political science, sociology, psychology, and economics, examining judgement and decision making and the possible impact of legal norms on human behavior. Private law doctrine, traditionally focused on the normative meaning of given legal provisions, considering research on concepts, systems, and principles as its foundation, was overlaid by fact- and consequence-oriented scientific approaches. Private law scholarship thus got increasingly involved in empirical legal research, analyzing the effects of different regulatory means on human behaviour, and proposing possible legal solutions to legal decision makers. Thus, the traditional boundary between private law and public law, which has traditionally been linked to influencing judgment and decision-making through deterrence or establishing incentives and disincentives via mechanisms like taxes, subsidies, prohibitions, and fines, became increasingly indistinct.

Contract law did not remain unaffected by these developments. In addition to its primary function of balancing interests between parties with the ideal of distributive justice, contract law also took on a regulatory role with partially exogenous values such as the common good, including the ideal of distributive justice. It became an instrument for the implementation of democratically legitimized goals, such as optimal resource utilization, sustainability, enforcement of the principle of equal treatment and the prohibition of discrimination, protection of the weaker party, prevention of over-indebtedness, availability of affordable housing, prevention of unfair business practices, and so on.