Laesio enormis and equality in exchange

(a) C. 4, 44, 2

There were times, however, when an entirely different attitude prevailed. It found its legal expression in the doctrine of laesio enormis,^[1331] an awe-inspiring piece of legal architecture, built upon the frail foundations of two texts from Justinian's Code.

"Rem maions pretii si tu vel pater tuus minoris pretii distraxit, humanum est, ut vel pretium te restituente emptoribus fundum venditum recipias auctoritate intercedente indicis, vel, si emptor elegerit, quod deest iusro pretio recipies, minus autem pretium esse videtur, si nee dimidia pars veri pretii soluta sit.'""

This rescript was ostensibly issued by Diocletian. It is not unlikely, however, that we are dealing with ajustinianic interpolation.¹⁵'¹ Even a superficial reading of the text raises suspicions. Thus, for instance, the object of the sale is referred to as "res" at the outset, as "fundus" later on. The first sentence has "iustum pretium", the second "verum pretium".^1S7 The vendor is at first "tu vel pater tuns" (the verb relating only to the third person), then only "tu". And the plurality of purchasers mentioned in the first part of the text femptoribus) corresponds equally badly with the single emptor in the second part. But even if the text was indeed subjected to later alterations, it does not necessarily follow that the substance of this fragment is entirely spurious.^{1 8} Yet, there are other arguments to confirm our suspicion. Up to the time of Justinian there is no sign that a remedy on the lines of that suggested in C. 4, 44, 2 was ever granted. The Codex Theodosianus, in particular, made no mention of such a remedy, even though there would have been occasion to do so had it already existed by that time.¹⁵⁹ Furthermore, it sounds unlikely that a conservative and classicist emperor such as Diocletian¹⁶⁰ should have been responsible for as uncouth an intrusion into a core principle of classical contract law as the remedy for laesio enormis represents.^16r Diocletian did indeed try to curb the freedom of the parties to determine the price of goods, but only by means of public-law regulations.

(1981) 98 ZSS 147 sqq. Alan Watson. "The Hidden Origins of Enorm Lesion", (1981) 2 Journal of Legal History 186 sqq.. finds that "it is simply logically impossible to provide [an answer]"; in ehe same vein, Klami ((1987) 33 Labeo 63; Roman Law and Hardship, p. 172) states: "... the riddle of laesio enormis cannot be solved. I suppose." For an analysis of the arguments pro and contra interpolation, see also Walter de Bondt, "Lesion in the Roman Law of Contracts", V)79 Juridical Review 45 sqq.

^b7 This point is emphasized by Klami, (1987) 33 Labeo 55 sqq.

¹³⁵ Cf. e.g. Kaser, RPr II, p. 389.

^¹ CT 3, 1, 1 (a. 319); 3, 1,4 (a. 383); 3, 1, 7 (a- 396). On the impact of these provisions on early medieval law, cf. Kenneth S. Cahn, "The Roman and Frankish Roots of the Just Price of Medieval Canon Law", (1969) 6 Studies in Medieval and Renaissance History 6 sqq., 43 sqq.

¹¹¹ Typical for his approach to law, e.g. Coll. XV, III, 2: "Maximi enim criminis est retractare quae semel ab antiquis statuta et definita suum statum et cursurn tenent ac possident."

^lf>1 Cf. e.g. C. 4, 44, 4 and C. 4, 44, 3, both also attributed to Diocletian; they are not in harmony with C. 4, 44, 2 and 8.

^I6-For details, see Hugo Blumner, "Der Maximaltarif des Diokletian vom Jahr 301, 1893", in: 72 Preussische Jahrbikher 453 sqq.; Graser, The Edict of Diocletian on Maximum Prices (1940); Siegfried Lauffer (ed.), Diokletians Preisedikt (1971); Marta Giacchero (ed.). Edictum Diocletiani et Collegarum de pretiis rerum venaliwn (1974).

In the second half of the 3rd century, the prices apparently rose by something like 800 %; in Egypt one unit of wheat seems to have cost 12-15 drachmai between A.D.

(b) Extension of C 4, 44, 2

It will have been noted that C. 4, 44, 2 is very far from establishing a clear and general rule. It deals with a specific situation and thus confines itself to granting relief to a particular applicant of the name of Aurelius Lupus. All one can say is that the emperor allows the vendor to rescind the contract if he has sold a tract of land for less than half its true value; the purchaser, however, is given the opportunity to avoid such a rescission by making up the true value. Yet. the underlying legal principle, namely that a contract can be so one-sided, the disproportion in the values exchanged so gross, that the law has to intervene and provide the disadvantaged party with a remedy: this principle, once it had been accepted in one individual situation, commended itself to be applied to a whole lot of further cases. Why should legal intervention be confined to combating exploitation of the peasantry {"Baiwmkgen")⁷. If the purchaser is in such a predicament that the vendor is able to sell his object (why necessarily a piece of land?) for more than double its true value, does he not equally deserve the protection of the law? It is easy enough to imagine such situations, where it is the purchaser who is the disadvantaged party. The same problems can crop up with regard to other contracts, too: a house may have been let for a rental far in excess of anything that is fair and reasonable or that is normally asked for houses of that kind. Conversely, the lessor may have been forced to agree to a rent amounting to not even half of what he should normally be able to receive.

All these and a variety of other questions began to be asked in medieval jurisprudence; and as the principle expressed in C. 4, 44, 2 was generally accepted, it is clear in which way the answers were premised. A breathtaking expansion of the institute of laesio enormis took place, in the course of which all the arbitrary restrictions of the imperial constitution were thrown off:^[1346] relief came to be granted not only to the vendor but also^[1347] to the purchaser;^[1348] the scope of application of the rule was extended from the sale of land to that of houses and of movables^[1349] (this was supported by the general word "rem"); it was adopted from sale into all kinds of other contracts, including, for instance, letting and hiring, compromise, exchange and even donation.^[1350] There has, however, hardly ever been unanimity about how far one could go; most of these questions were hotly debated, the answers depending, largely, on how much the individual authors were attracted by the idea of equality in exchange, and on how faithfully they tried to apply and interpret the sources of Roman law.

(c) Consequential problems

Still, however liberally one was prepared to dispense with the limitations of C. 4, 44, 2, the very fact that the remedy for lacsio enormis originated in this text, led to some further consequential problems. Take, for example, the case where the purchaser is the disadvantaged party. How does one apply a remedy that has been designed for the reverse situation and therefore allows the seller to rescind the contract if he has obtained less than half of the hue price?¹⁷⁵ Should one give the purchaser the same option if he has had to pay more than double?¹⁷⁶ Let us assume the "true value" of the object sold to be 100. The vendor would then enjoy the protection of the law if the purchase price was 49 or less, the purchaser only if it was 201 or more. Thus, on this construction, the purchaser seems to lose out, for from a purely arithmetical point of view the margin of what the law still expects him to tolerate before he can avail himself of a remedy is exactly double of what is laid down in the case of the vendor: the vendor can rescind if he has been overcharged by more than 50, whilst the purchaser must have been overcharged by more than 100. This is the reason why the glossators and commentators tended to reject the purely geometrical method (as they called it) of assessment if the purchaser had suffered laesio enormis and favoured an arithmetical calculation: the purchaser should be entitled to the remedy if he had had to pay more than the true value plus half, i.e., in our example, more than 150. On purely logical grounds, neither of these approaches can be faulted, and thus the dispute was never conclusively resolved.¹⁷⁷

Laesio enormis has been compared to the hydra: each answer to any of the questions raised seemed to cause a host of new problems. "Vides quod capita habeat haec hydra?^{[1351] [1352]' exclaimed Christian Thomasius, exasperated by a string of more than thirty questions which he had just formulated.[1353] [1354] In the course of time, most of the features of laesio enormis came under attack.}

(d) The problem of establishing the iiistum pretium

All these problems, however, are, in a certain sense of a merely technical nature. The real crux of laesio enormis lies elsewhere. However the limits might be fixed, and whatever the nature of its sanctions, the doctrine can work only if there is a true or just price for every article, against which one is able to assess what the parties have agreed upon. Economic liberalism denies the existence of such an objective yardstick. The value in a contract depends upon the judgement of the contracting parties themselves, not upon that of other people.

"The value of a thing... must be in its nature fluctuating, and will depend upon ten thousand different circumstances. One man, in the disposal of his property, may sell it for less than another would. He may sell it under a pressure of circumstances, which may induce him to part with it at a particular time. If courts of equity were to unravel all these transactions, they would throw every thing into confusion, and set afloat the contracts of mankind."^{1 5}

Or, in the words of Thomas Hobbes: "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."^{[1360] [1361] The astounding career of laesio enormis was possible only because the medieval scholastics, and later the natural lawyers, took an entirely different view of this matter and considered equality of exchange to be one of the basic principles of the law of contracts:..carius vendere aut vilius cmere rem quam valeat, est secundum se injustum et illicitum"[1362] as St. Thomas Aquinas put it; "[i]n contractibus natura aequalitatem imperat, et ita quidem, ut ex inaequalitatc jus oriatur minus habenti",[1363] 8 to quote the "father" of a natural law, that was no longer divinely inspired, but based on human reason. But how can such inaequalitas ever be established?[1364] Admittedly, the price is determined by a subjective estimation. However, a price determined subjectively by all becomes objective to each. It would be sinful (or: contra ius naturale) to deviate from this common estimate in an individual transaction, for that would imply the exploitation of this particular purchaser (or vendor). Thus, the doctrine of equality in exchange was not based on the belief that each object has an intrinsic and immutable value, and that this value represents the iustum pretium.[1365] Neither was the just price of goods linked to their cost of production.[1366] Instead, it was identified with the market price set under competitive conditions.}

. iustum cuiusque rei pretium non ex cuiuslibet affectione, nut sumptu constat, sed ex communi hominum aestimatione perpenditur: itaque tantum valet res, quantum absque fraude et iniuna communiter potest homini scienti cius condi­tionem.... Non ignoramus... pretia rerum, quae usquam posuimus, alia in aliis locis esse, et omnibus pene annis mutari."¹⁴⁷

These ideas about equality of exchange go back to Aristotle (who had argued that neither party, as a matter of commutative justice, must be enriched at the expense of the other )^[1367] from where they were taken up and further developed by St. Thomas Aquinas. They profoundly influenced both the doctrine of canon law^[1368] and the earlier natural-law theorists: so much so that laesio enormis, which provided relief only in certain extreme cases, was regarded as entirely unsatisfactory.^[1369] Each deviation from the just price, so it was argued, constitutes a peccatum^[1370]"⁶ and is sufficiently serious to grant an action in foro externo.^[1371] The writers of the ius commune, however, by and large adopted a more positivistic attitude; they continued to apply C. 4, 44, 2 and thus to require the contract price to deviate by more than half from the just price. The Aristotelian theory could, after all, be used to explain why the remedy was provided; and its limitations, as a matter of positive law, could be reconciled with the economic ethics of scholasticism by confining laesio ultra dimidmm to the forum externum and dealing with the less severe cases of laesio in foro conscientiae,^{[1372] [1373] by pointing to the flood of litigation that would ensue but for the clear limit set in C. 4, 44, 2 ("Permittit autem Jus utrimque deceptionem, quae non est ultra dimidium justi pretii, ad vitandas innumeras lites, quae sequerentur, si ex qualibet fraude daretur actio"),194 or by adopting a sort of margin approach: the contract price is iustum if it has been fixed somewhere between the highest and the lowest value of the object sold.[1374]}

(e) The abolition of laesio enormis

Once, however, the belief in one's ability to assess equality in exchange had been shaken and once the idea of private autonomy had again started to gain ground and to supersede metaphysical, "natural", or paternalistic notions of contractualjustice, the concept of laesio enormis was doomed. Inherently arbitrary and preposterous, full of pitfalls and anomalies, subversive and fatal, as it now appeared to disillusioned judges and academic writers,^[1375] suitable only to be the object of mockery and legal satire,^[1376] laesio enormis did not become part of the BGB.²⁰³ For the whole of the 19th century there are no reported cases in which an action arising from laesio enormis was successful.²⁰⁴ In France²⁰⁵ and Austria²⁰⁶ the doctrine still exists, but it leads a very quiet, practically impotent, pensioner's life.²⁰⁷ The South African courts, in turn, have seen no need to revivify the moribund.²⁰⁸ The Tjollo Ateljees case struck the mortal blow,²"⁹ but it was the legislator who finally ended its existence as far as Roman-Dutch law is concerned:²¹⁰ an interesting case of a formal abolition of a common-law rule.

(f) Equality in exchange today

However, as one knows, there is life after death. Modern codifications are generally disinclined to recognize inadequacy of price as an independent ground for relief. § 138 BGB is an example in point. According to its second subsection, it is not the disparity of values in itself that voids the contract; even a striking disproportion between performance and counterperformance is relevant only if it has been brought about by the exploitation of certain enumerated weaknesses on the part of the disadvantaged party.^[1377] The code, in other words, proceeds from the assumption that, as long as both parties are in a position to assess their circumstances properly and to draw the appropriate conclusions from such an assessment,^[1378] their contractual arrangements have to be given effect to. However, the courts have not always been happy to accept the results of such far-reaching party autonomy. On the one hand, they have begun to infer exploitation of one of the enumerated weaknesses, if the disproportion in the price is obvious and the contract therefore grossly unfair and inequitable.^{[1379] [1380]} The greater the disproportion, the more willing the courts have become to conclude that there is, for instance, inexperience or indiscretion.²¹⁴ On the other hand, § 138 BGB ("Legal transactions contra bonos mores are void") has been used to sidestep the restrictive requirements of § 138 II. A contract under which the one party obtains advantages in obvious disproportion to what he returns, is taken to be contra bonos mores, if the advantaged party displayed a reprehensible attitude, by either deliberately exploiting the weaker economic position of his opponent, or by grossly negligently failing to realize that the latter entered into the contract only because of his precarious situation.^{[1381] [1382]} This subjective component, however, has an almost fictitious charac­ter, as the courts are prepared to draw inferences from the objective circumstances of the contract (especially the disproportion in values) without requiring specific evidence as to whether the conduct in question was wilful or grossly negligent.^[1383] One court has even gone so far as to argue quite boldly that a particularly gross disproportion (as opposed to a merely obvious or striking one) is sufficient reason in itself to void the contract under § 138 I; and it has regarded a disproportion to be "particularly gross" if what has been promised exceeds the value of the performance by 100 %.^[1384] These and similar developments, both in Germany^[1385] and in other countries^[1386]—particularly the fact that the Austrian legislator in 1979 szavc teeth to § 934 ABGb by disallowing renunciation of the remedy"^[1387]"—have led to a renaissance of laesio enormis. This renaissance is part of a rediscovery of equality in exchange.^[1388] The heyday of extreme individualism was short-lived and even before the BGB had come into existence the legislator started to take the first steps towards what is usually broadly referred to as consumer protection.^[1389] Today, the question is asked whether a piecemeal modification of the law of contract, in order to protect the socially and economically weaker party, is still a satisfactory way of tackling the problem, or whether one should not rather consolidate all these reforms and conceptualize a whole new body of consumer law. This is a wide field that cannot be explored in the present context.^[1390] Suffice it to say that this transition from freedom of contract to social responsibility can be seen, in a broader context, as a return to the ethical foundations of the earlier ius commune^[1391] (which, in turn, had superseded the individualism of classical Roman law). One may well be sceptical about the reintroduction of rigid and (necessarily) arbitrary limitations of the freedom of the parties to fix their price, on the model of the historical laesio enormis. C. 4, 44, 2 was a relatively crude attempt to strike a balance between invicem se circuniscribere and equality in exchange.^[1392] Some degree of flexibility will have to be built into the modern remedies, in order to allow the judge to take into consideration the specific (objective and subjective) circumstances of the case.^[1393] But here, as everywhere, Jhering's "through Roman law beyond Roman law" has to be kept in mind. It is only by examining the continuity and transformation of Roman law within the history of the ius commune and by critically assessing our place within the rhythm ot developments that we can make meaningful progress.