SANCTITY OF CONTRACT.

New Zealand Herald, Volume LXIX, Issue 21110, 18 February 1932, Page 12

SANCTITY OF CONTRACT.

Sir, —The letter of Mr. J. D. McMillan on the matter raised bv Mr. Seaman, the president of the Chamber of Commerce, puts the position very clearly. The directors of the Bank of England, he has pointed out. chose between breach of a contract and widespread ruin and that condi/ons to-day in the matter of individual contracts as well as international ones are wholly different to what they were when many of them were entered into. There has been an economic earthquake. though some seem even yet unable to realise it. Common Justice.

Sir,—The article* of tho professor of law ah Auckland University College under the above caption in a recent issue of the Herald makes interesting reading, but there appear to be one or two aspects of the matter which the legal mind is prone to overlook. Broadly speaking, the worldwide fall in prices that has existed as an underlying tendency for 10 or 12 years, has brought it about,that those with contractual claims to fixed money incomes have benefited, since the fall in prices has meant that their fixed money incomes have yielded ever-increasing real income. The classes so benefiting include those under long period contracts of service. the terms of wTiich cannot be varied during the currency of tho contract (such cases are rare), and those who as lenders or landlords have contractual rights to receive fixed money incomes over a period. Debenture-holders and mortgagees are included in the benefiting classes, but not shareholders, for, broadly speaking, the depression nas caused a reduction of industrial earnings and therefore of dividends. True, in some cases the landlord or the mortgagee has had to make concessions to the debtor who found himself unable to meet, the exact letter of his money obligations, but such eases are so far the exception rather than the rule, despite the existence of Mortgagors' Policf Acts, etc. The vcrv existence of such legislation shows that Parliament recognises that otherwise injustice would be done, that there exist circumstances causing insuperable difficulty in the meeting of such obligations. The granting of such concessions is stigmatised in certain quarters as a violation of the principle of sanctity of contract. How far is this view tenable? Actually, the present situation is very much the same as that which would exist if through some extraneous cause the weight of the ton were altered and all persons who had entered into contracts for tho supply of fixed weights of commodities were automatically held to the letters of (heir contracts. Almost all contracts involve a money element, and extraneous causes have operated to vary the purchasing power of the money unit. Tt is law, but it is not justice that one. party to the contract should b c permitted to take advantage of that chance to oxact more purchasing power from the other pnrtv than either party had in mind when the contract was entered into. The letter of the contract in long-term contracts covering the payment of money actually violates the spirit of the undertaking. It is admitted by the writer of this letter that certainty of contract is a fundamental pro-requisite to stability of commerce, and that the power of Parliamentary interference with the letter of contracts should therefore be sparingly exercised. But surely when the observance of the letter involves a violation of (he spirit of the contract (owing to variation in (he unit, in terms of which the contract is expressed) the elements of instability are already present, amounting to the certainty of insolvency for many members of the debtor class, and common justice and public interest demand that the law should step in and vai-y the letter in order to preserve tho spirit. P.N.