Long back in ancient times, a trade takes place via the bartering system. Typically a barter system is a form of exchange where people exchanged services and goods for other services and goods in return. In a barter system, value of items can be negotiated and there was no money involved.
The downside of a barter system is that it places a lot of reliance of the credibility of the trading party. The other person does not have any proof or certification that the goods are legitimate, and there is no consumer protection or warranties involved. In essence, there is an underlying issue of enforcing promises.
Then in the 18th century, the ‘Industrial Revolution’ came along with changes in technology, social economic and culture. Britain was transformed from an agricultural country into the manufacturing nation of the world. Advances in technology and practices resulted in increased production and efficiency. Increased activities then brought on increase in other activities. By the end of 19th century, Britain had experienced a rapid expansion of trade and industry. This inevitably resulted in the increments in the volume of commercial disputes as people turn to the court for resolutions.
Though gradually, rules are developed to manage disputes, nevertheless these rules are still largely influenced by the concept of laissez-faire. Laissez-Faire is an economic philosophy that suggest government involvement in finances is not necessary as the market will balance itself out naturally. Freedom of choice is the right of one to make a selection from at least two or more options. These theories formed the basis of a legal framework for the regulation of business transaction that resulted in the formation of contract laws across the world. They also helped to shape the role of the courts.
Courts were required to enforce the agreement of the parties. Over the years, the freedom of contract theory is subjected to different limitations. The theory of equality of bargaining power had brought certain unnecessary results because parties to a contract do not necessarily have equality.