The History of Contracts from the Middle Ages to the Present【From the History of Contracts to Smart Contracts: Part I】
We will look back historically at what a contract is.
Good morning.
I am mitsui, a web3 researcher.
Every Saturday and Sunday at noon we update the web3 basics report. This week we will discuss "Contracts". Please take a look until the end!
Introduction.
Ancient: Covenant as an Oath to the Gods
Roman law: laying the foundation for contract theory
Medieval Europe: Establishing Trust through Sealing Wax and Notaries
After Modern Times: The Industrial Revolution and the Great Transformation of the Contract System
Summary: Limits of an Intermediary-Dependent Society
Introduction
A contract is "a mechanism for socially guaranteeing a promise. This sentence represents a concept that is crucial to understanding the development of human society. The various transactions we engage in on a daily basis (buying and selling goods, renting land, providing labor) are all based on the foundation of contracts.
But why are contracts so important?
This is because, unlike a mere promise, it is a mechanism by which society as a whole guarantees its fulfillment. While oral promises between individuals are left to the conscience of the parties, contracts are legally binding and their execution is guaranteed by the intervention of a third party. Without this mechanism, we would not be able to conduct transactions with strangers with peace of mind.
The history of contracts is closely tied to the development of human civilization. Beginning with simple promises between relatives, the evolution to documentation, signatures, and the use of seals has allowed for larger and more complex transactions. The development of commerce, the expansion of cities, and trade between nations have all been supported by advances in the contract system.
In this series, we will follow the story of the evolution of contracts from the first contracts inscribed on clay tablets in ancient Mesopotamia to the smart contracts of modern web3 technology.
Ancient: covenant as a vow to the gods
The prototype of the contract born at the dawn of civilization
The oldest written contracts known to man are recorded on clay tablets found in Mesopotamia around 2000 BC. In this region, which is now southern Iraq, silver loan contracts, marriage contracts, and land sales contracts were recorded in detail in cuneiform script. These clay tablets were not mere records, but a revolutionary technology that perpetuated the promises made between the parties and left them in a form that could be proved to third parties.
It is noteworthy that these ancient covenants were set up as "oaths to the gods". The parties to the contract made oaths in the name of the gods, fearing divine punishment if they broke their promises. In other words, religion played an important role in ensuring the reliability of the contract. This may be a difficult sensation for us to understand today, but for the people of that time, the existence of the gods was absolute, and the promises made under their watch were absolutely binding and unbreakable.
Extension of trust enabled by cuneiform
The significance of the Mesopotamian merchants' use of cuneiform to record their contracts is immeasurable. Until then, oral agreements could only rely on the memory of the parties involved and the presence of witnesses. However, the letters engraved on clay tablets will endure the passage of time and remain as evidence. This made more complex and long-lasting transactions possible.
For example, one clay tablet records something like, "By oath to the god Ashur, the son of Shamsi Adad will repay 30 shekels of silver in two years at harvest time." This contract includes an oath to God, a specific date, a definite amount of money, and identification of the parties, all of which indicate that the basic elements of a modern contract are already in place.
A similar development was observed in ancient Egypt. Contracts recorded on papyrus include complex loan agreements secured by agricultural income from the flooding of the Nile River and labor contracts related to the construction of the pyramids. In these contracts, the authority of the pharaohs and the blessings of the gods guaranteed the fulfillment of the contracts.
In ancient China, the oracle script (a record of divination) contains records of inquiries to the gods concerning business transactions. These inquiries, which include such questions as "Should I enter into this transaction?
The inseparable relationship between religion and covenant
In ancient society, covenant and religion were inseparable. Breach of contract was not merely a breach of promise, but was considered an act of disobedience to God and was subject to religious sanctions as well as social sanctions. This religious binding force was an important factor in the functioning of the contract system in ancient societies where state power was not yet fully developed.
Roman law: laying the foundation for contract theory
Systematizing Contract Concepts through Rational Thinking
By rationally analyzing and systematizing the contractual practices of the ancient world, the jurists of the Roman Empire laid the foundation for the later Western legal system. Their greatest legacy is that they clearly organized the "requirements" and "form" of contracts. In particular, the concept that "conformity of intention" (agreement) is the essence of the formation of a contract has been handed down as a core principle of contract law to the present day.
The Roman jurist Ulpianus defined a contract as "a legally binding promise made by the agreement of wills between the parties. This definition is extremely important, as it breaks away from the religious and ritualistic view of contract and clarifies that the core of a contract is an agreement based on the rational judgment of human beings.
Four basic contract types
The Roman jurists classified the myriad of covenants into four basic types. This classification has had a profound influence on modern contract law theory.
First, there is the "contractus verbis" (contract requiring a fixed term or ceremony). This is a contract that requires a fixed term or ritual, e.g., "I lend you 100 denarius. Do you promise to repay the same amount?" This is a contract of loan for consumption, for example, with the formulaic question and answer, "I promise. The strictness of the form of the contract had the effect of clarifying the intention of the parties and preventing disputes at a later date.
Second, a "contractus re" (contract in need) is a contract formed by the delivery of a thing. It is the prototype of the modern pledge or deposit contract, in which the contractual relationship is created by the actual delivery of the thing. This reflects the practical concept of proving a contract by physical evidence.
Third, the "written contract" (contractus litteris) is a contract formed by the creation of a document. This unique system, in which a contract is concluded by entering an obligation in the books of the patriarch, grew in importance with the development of commercial activities.
Fourth, a "consensual contract" (contractus consensu) is a contract formed solely by the agreement of the parties. Sales, lease, mandate, and partnership contracts fall into this category and are the closest to the modern concept of contract.
Development of commercial activity and expansion of contracts
The commercial prosperity of the Roman Empire encouraged the further development of the contract system. Large-scale trade activities in the Mediterranean required merchants from different regions and cultures to trade with each other, which could not be accommodated by the regionally limited contractual practices of the past.
It was here that the Roman jurists developed the concept of "universal civil law" (jus gentium). This was a universal legal principle that applied not only to Roman citizens but also to foreigners, and was a revolutionary idea that extended the contract system internationally. Under universal civil law, agreed-upon contracts were considered valid regardless of origin or religion, and this dramatically stimulated commercial activity throughout the Roman Empire.
The principle of "good faith" (bona fides), founded by Solicitor General Pretl, is also important. This principle requires that the parties act in good faith with respect to each other in the interpretation and performance of the contract, and was based on the idea of emphasizing the purpose of the contract and the reasonable expectations of the parties, rather than being concerned with the letter of the contract. This principle allowed for flexibility in dealing with the various issues that arise in complex commercial transactions.
Elaboration of contract theory by legal scholars
Roman jurists continuously developed their contract theory by analyzing actual conflict cases. In particular, the Digesta (scholastic compilations) contain detailed records of the contract interpretation theories of prominent jurists.
Paulus developed the theory of contractual miscomprehension and established the principle that a contract is invalid if there is a miscomprehension as to a material matter. This is the prototype for the invalidity of miscomprehension in modern contract law.
Gaius systematized the classification theory of contracts and laid the foundation for later legal education. His "Dissertation on the Law" was long used as a textbook for learning the basic concepts of contracts and had a great influence on the teaching of law in medieval universities.
Modestine laid the foundation for the principle of freedom of contract with his famous maxim that "contracts arise from agreements, not laws." This was an innovative idea that clarified that the free decision of the parties is the source of the binding force of contract, not the unilateral imposition of law by state power.
Medieval Europe: establishing trust through sealing wax and notaries
The authority of the contract created by the culture of sealing wax
The most distinctive feature of the development of the contract system in medieval Europe is the use of sealing wax (seals) and seals. Contracts of this period were sealed with the wax seals of the parties, which guaranteed the authenticity and authority of the contract. Breaking or forging the wax seal was considered a serious offense and in some cases was punishable by death.
The background of the sealing wax culture is the class system of medieval society. Only nobles, clergy, and wealthy merchants were allowed to have personal seals, and the use of a seal was also a symbol of social status. Therefore, sealing with a seal was more than just a means of identification; it was a commitment to a person's social prestige.
What is interesting is the similarity between this medieval European sealing culture and the Japanese seal culture. Both placed great importance on the special authority of the "seal" and developed the custom of always affixing a seal to important contracts and documents. The difference, however, is that in Europe, personal seals (signet rings) were the norm, whereas in Japan, the emphasis was on the seal of the family or organization. The cultural background for the importance of seals in modern Japanese contracting practices can be traced back to this medieval tradition.
Establishment of third-party guarantees through the notary system
Another important institution that developed in medieval Europe was the notary system. This system was designed to enhance the reliability of contracts by having a neutral third party, the notary, certify the conclusion of the contract and keep a record of it.
Notaries were usually clergymen or intellectuals with a background in law, and functioned with the trust of the community. They verified the identity of the contracting parties, confirmed the terms of the contract, witnessed the signing and sealing of the contract, and kept the contract in their custody. They also served as important witnesses in case of disputes at a later date.
This notarial system developed especially in the commercial cities. In the commercial republics of Venice, Genoa, and Florence, notary guilds were organized to provide highly specialized notarial services. Merchants in these cities were able to conduct large transactions with remote merchants with confidence through the authentication of contracts by notaries.
The Development of Commercial Law and International Contracts
In the late Middle Ages, merchant law developed along with the expansion of Mediterranean trade. This was an international legal system that integrated local commercial practices, with the goal of allowing merchants from different countries to deal with each other under common rules.
The invention of bills of exchange was one of the greatest innovations in the contractual system of the period. The system, devised by Italian bankers, allowed payment to be completed by means of a written promissory note, without the need to transport cash in person. This greatly reduced the risks of long-distance transactions and created a Europe-wide commercial network.
Marine insurance policies were another important invention. It was a mechanism to spread the risk of maritime accidents among multiple investors, allowing merchants to engage in maritime trade with peace of mind. The marine insurance system that gave rise to Lloyd's of London was a revolutionary form of contract that laid the foundation for the modern insurance industry.
The Fusion of Ecclesiastical and Secular Law
In medieval Europe, ecclesiastical law (canon law) and secular law were intricately intertwined. In particular, marriage contracts, wills, and loan agreements with interest were subject to religious regulations.
Since the Church forbade loan sharking, merchants used various devices to realize loan contracts with interest. Examples include financial contracts disguised as exchange transactions and contracts for the deferred payment of goods. These forms of contracts were the fruit of wisdom to keep commercial activities going despite religious restrictions.
Marriage contracts provided detailed arrangements regarding the ownership of property and inheritance rights. Political marriages, especially those between aristocrats, contained complex contractual clauses involving territories and political alliances that had international political significance beyond mere promises between individuals.
After Modern Times: The Industrial Revolution and the Great Transformation of the Contract System
The Age of Discovery and the Explosion of International Contracts
The Age of Discovery of the 17th and 18th centuries brought revolutionary changes to the contract system. As European merchants began to trade in earnest with Asia, Africa, and the Americas, a series of new challenges arose that could not be addressed by traditional, region-specific contractual practices.
The establishment of the East India Company was a symbolic event of the contractual innovations of the period. The British East India Company, the Dutch East India Company, and other companies obtained patent rights from the king to obtain exclusive trading rights and concluded complex investment contracts with their shareholders. These contracts stipulated in detail how risks and profits would be shared, how management rights would be allocated, and dividend policies, and became the prototype for the modern joint-stock company system.
The development of marine trade insurance was another important development. The marine insurance business, which began in Edward Lloyd's coffee house in London, formed the world's first organized insurance market. All risks involved in maritime transactions were covered by insurance policies, from ships and cargoes to the lives of seafarers, and more detailed and comprehensive policy clauses were developed than ever before.
The expansion of international trade also created new problems of enforcing contracts between different legal systems. When European merchants dealt with Asian merchants, questions frequently arose as to which law to apply and which court to settle disputes in the event of a dispute. In response, contracts began to include governing law clauses and arbitration clauses, forming the basis of modern international contracts.
The Industrial Revolution and the Spread of Standard Contracts
The Industrial Revolution of the 19th century brought two major changes to the contract system. First, the development of factory-based industry ushered in a mass-production and mass-consumption society, to which "standardized contracts" were widely adopted. Second, new technologies such as railroads, telegraphs, and steamships dramatically increased the speed with which contracts could be concluded and executed.
The spread of standard contracts has brought about a revolutionary change in contract practice. While previously contracts were drafted from scratch for each individual case, standard contract clauses were prepared in advance for similar transactions, and only individual terms and conditions were changed for use in general. This has greatly reduced the time and cost required to conclude contracts, and has enabled a large volume of business transactions to be handled efficiently.
The development of standard policy clauses in the insurance industry was particularly significant. Detailed standard clauses were developed for fire, marine, and life insurance, and these became the basis for insurance legislation in many countries. Lloyd's Marine Insurance Policy was widely adopted as the global standard and still serves as the basic framework for international marine insurance.
Contracts of carriage for railroad companies were another important development. In order to efficiently transport large numbers of passengers and freight, railroad companies created detailed standard terms and conditions, which became the basis of modern contract of carriage law. In particular, detailed provisions were made regarding limitations on the carrier's liability, the handling of dangerous goods, the scope of damages, etc., and complex legal theories were fleshed out on a practical level.
Completion of the Modern Contract System
In the 20th century, the contract system became even more sophisticated. The importance of international transactions was reaffirmed through the two world wars, and work to standardize contract law by international organizations such as the International Association for the Unification of Private Law (UNIDROIT) began in earnest.
The passage of the United Nations Convention on Contracts for the International Sale of Goods (Vienna Convention on the Sale of Goods) was the fruit of this effort. By establishing common contractual rules among countries with different legal systems, the legal stability of international transactions was greatly enhanced.
The professionalization of corporate law was another important development. Legal departments in large corporations and corporate legal teams in law firms have become highly specialized and are responsible for drafting, reviewing, and negotiating extremely complex contracts: M&A agreements, license agreements, joint research and development agreements, and other agreements that are more detailed and comprehensive than previously thought possible.
The introduction of stamp taxes and the increased involvement of lawyers are also features of the modern contract system. Many countries now impose a stamp tax on contracts, which has become an important factor in supporting the legal validity of contracts. In addition, specialized legal knowledge became indispensable in drafting and reviewing complex contracts, and the involvement of lawyers became the norm. While this increased the legal stability of contracts, it also significantly increased the cost of concluding contracts.
Summary: The Limits of an Intermediary-Dependent Society
Contract Evolution as a History of Trust Extension
As we have seen throughout the previous section, the history of contracts is also the history of the expansion of trust in human society. Beginning with narrowly defined trust relationships based on blood and geographical ties, it has become possible to establish more extensive and complex trust relationships through various mechanisms such as religious authority, state power, and professional intermediaries.
Beginning with the ancient Mesopotamian oath to the gods, through the rational contract theory of Roman law, the medieval sealing wax and notary system, to the standard contract and expert involvement of the modern era, what has been seen consistently is the reliance on "third party guarantees. Since the contracting parties alone could not establish sufficient trust, they relied on intermediaries with religious authority, political power, and expertise to ensure the reliability of the contract.
This intermediary-dependent system has worked reliably and has contributed significantly to the development of human society. Modern complex economic activities are also supported by a multi-layered system of intermediaries, including lawyers, notaries, courts, and regulatory agencies.
Challenges of intermediary-dependent systems
However, this intermediary-dependent system has structural challenges. First, the presence of an intermediary inevitably increases costs. Significant costs are incurred in concluding and executing contracts, including legal fees, notary fees, stamp taxes, and court costs.
Second, the intervention of intermediaries creates delays in contract processing. Legal review, approval procedures, and dispute resolution take a long time, hindering speedy transactions. In the digital age, there are more and more situations in which the traditional intermediary system cannot handle the speedy transactions of the digital age.
Third, there is the issue of the credibility of the intermediary itself. If the intermediary is corrupt or incompetent, the credibility of the entire contracting system is compromised. The excessive concentration of power in the hands of intermediaries also creates a new risk of abuse of power.
Fourth, there is the complexity of the intermediary system in cross-border transactions. Coordination among intermediaries operating under different legal systems, languages, and cultures is extremely difficult, significantly increasing the cost and time of international transactions.
Expectations for a New Trust Paradigm
Against the backdrop of these challenges, new technological possibilities have attracted attention in the 21st century. Developments in the Internet, cryptography, and blockchain technology have opened up the possibility of new trust-building mechanisms that do not rely on traditional intermediaries.
In the second part, we will examine in detail how this technological development is transforming the contract system and the possibility of a paradigm shift from the traditional intermediary-dependent system to a decentralized trust system. We will explore the possibilities and challenges of new developments in the web3 era in the contracting system that has been built up over the long history of mankind.
Disclaimer：I carefully examine and write the information that I research, but since it is personally operated and there are many parts with English sources, there may be some paraphrasing or incorrect information. Please understand. Also, there may be introductions of Dapps, NFTs, and tokens in the articles, but there is absolutely no solicitation purpose. Please purchase and use them at your own risk.
About us
🇯🇵🇺🇸🇰🇷🇨🇳🇪🇸 The English version of the web3 newsletter, which is available in 5 languages. Based on the concept of ``Learn more about web3 in 5 minutes a day,'' we deliver research articles five times a week, including explanations of popular web3 trends, project explanations, and introductions to the latest news.
Author
mitsui
A web3 researcher. Operating the newsletter "web3 Research" delivered in five languages around the world.
Contact
The author is a web3 researcher based in Japan. If you have a project that is interested in expanding to Japan, please contact the following:
Telegram：@mitsui0x
*Please note that this newsletter translates articles that are originally in Japanese. There may be translation mistakes such as mistranslations or paraphrasing, so please understand in advance.