Freedom of contract or
contractualism is the freedom of individuals to bargain among themselves the terms of their own contracts, without government interference. Anything more than minimal regulations and taxes may be seen as infringements. It is the underpinning of the theory of
laissez-faireThe general meaning of Laissez-faire is to allow events to take their own course, or to let people do what they choose. The term is a French phrase literally meaning "let it be" or "leave it alone"....
economics.
Freedom of Contract as we know it today stemmed from the
EnlightenmentThe Age of Enlightenment, or simply The Enlightenment, is a term used to describe a time in Western philosophy and cultural life, centered upon the eighteenth century, in which reason was advocated as the primary source and legitimacy for authority....
ideals of
John LockeJohn Locke was an English physician and philosopher regarded as one of the most influential of Enlightenment thinkers. Considered the first of the British empiricists, he is equally important to social contract theory. His work had a great impact upon the development of epistemology and political...
.
Freedom of contract or
contractualism is the freedom of individuals to bargain among themselves the terms of their own contracts, without government interference. Anything more than minimal regulations and taxes may be seen as infringements. It is the underpinning of the theory of
laissez-faireThe general meaning of Laissez-faire is to allow events to take their own course, or to let people do what they choose. The term is a French phrase literally meaning "let it be" or "leave it alone"....
economics.
History
Freedom of Contract as we know it today stemmed from the
EnlightenmentThe Age of Enlightenment, or simply The Enlightenment, is a term used to describe a time in Western philosophy and cultural life, centered upon the eighteenth century, in which reason was advocated as the primary source and legitimacy for authority....
ideals of
John LockeJohn Locke was an English physician and philosopher regarded as one of the most influential of Enlightenment thinkers. Considered the first of the British empiricists, he is equally important to social contract theory. His work had a great impact upon the development of epistemology and political...
. Locke's
Two Treatises of GovernmentThe Two Treatises of Government is a work of political philosophy published anonymously in 1689 by John Locke...
argued against the divine right of kings as the supreme authority. Society, Locke reasoned, functioned best when freely determined social contracts governed human behavior. This was the only way to preserve life, liberty, and property. He called these "natural" rights.
Henry James Sumner MaineSir Henry James Sumner Maine, KCSI , was an English comparative jurist and historian. He is famous for the thesis outlined in Ancient Law that law and society developed "from status to contract." According to the thesis, in the ancient world individuals were tightly bound by status to traditional...
expanded the idea when he proposed that social structures evolve from roles derived from
statusIn sociology or anthropology, social status is the honor or prestige attached to one's position in society .A society's stratification system, which is the system of distributing rewards to the members of society, determines social status. Social status, the position or rank of a person or group...
to those based on contractual freedom. A status system establishes obligations and relationships by birth whereas a contract presumes that the individuals are free and equal. Modern
LibertarianismLibertarianism is a term adopted by a broad spectrum of political philosophies which advocate the maximization of individual liberty and the minimization or even abolition of the state...
such as that advanced by
Robert NozickRobert Nozick was an American philosopher and professor at Harvard University. He was educated at Columbia , where he studied with Sidney Morgenbesser, at Princeton , and Oxford as a Fulbright Scholar. He was a prominent American political philosopher in the 1970s and 1980s...
sees freedom of contract as the expression of the independent decisions of separate individuals pursuing their own interests in a "minimal state."
Lochner v. New York
In 1902 a
New YorkNew York is a state in the Mid-Atlantic and Northeastern regions of the United States and is the nation's third most populous. The state is bordered by New Jersey and Pennsylvania to the south, and Connecticut, Massachusetts and Vermont to the east...
baker named Joseph Lochner was fined for violating a state law limiting the number of hours his employees could work. He sued the state on the grounds that he was denied his right to "due process". Lochner claimed that he had the right to freely contract with his employees and that the state had unfairly interfered with that right.
In 1905 the
Supreme CourtThe Supreme Court of the United States is the highest judicial body in the United States, and leads the federal judiciary. It consists of the Chief Justice of the United States and eight Associate Justices, who are nominated by the President and confirmed with the "advice and consent" of the Senate...
used the "
due processDue process alternatively due process of law or the process that is due, is the principle that the government must respect all of the legal rights that are owed to a person according to the law...
" clause in the
14th AmendmentThe Fourteenth Amendment to the United States Constitution, along with the Thirteenth and Fifteenth Amendments, was adopted after the Civil War as one of the Reconstruction Amendments. It was adopted on July 9, 1868....
to declare unconstitutional the
New YorkNew York is a state in the Mid-Atlantic and Northeastern regions of the United States and is the nation's third most populous. The state is bordered by New Jersey and Pennsylvania to the south, and Connecticut, Massachusetts and Vermont to the east...
state statute imposing a limit on hours of work. In
Lochner v. New YorkLochner v. New York, , was a landmark United States Supreme Court case that held a "liberty of contract" was implicit in the due process clause of the Fourteenth Amendment. The case involved a New York law that limited the number of hours to ten that a baker could work each day, and to 60 the hours...
,
Justice PeckhamRufus Wheeler Peckham was an Associate Justice of the Supreme Court of the United States from 1895 until 1909. He was known for his strong use of substantive due process to invalidate regulations of business and property. Peckham's namesake father was also a lawyer and judge, and a congressman...
wrote for the majority: "Under that provision no state shall deprive any person of life, liberty, or property without due process of law. The right to purchase or to sell labor is part of the liberty protected by this amendment..."
Writing in dissent,
Oliver Wendell HolmesOliver Wendell Holmes, Jr. was an American jurist who served as an associate justice on the Supreme Court of the United States from 1902 to 1932...
accused the majority of basing its decision on
laissez-faireThe general meaning of Laissez-faire is to allow events to take their own course, or to let people do what they choose. The term is a French phrase literally meaning "let it be" or "leave it alone"....
ideology. He believed that they were making law based on
economicsEconomics is the social science that studies the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
rather than interpreting the constitution. Neither did he believe that "Liberty of Contract" existed or was intended in the constitution.
In his "Liberty of Contract" (1909),
Roscoe PoundNathan Roscoe Pound was a distinguished American legal scholar and educator.-Early life:Pound was born in Lincoln, Nebraska, USA to Stephen Bosworth Pound and Laura Pound....
critiqued freedom of contract laws by laying out case after case where labor rights were struck down by State and Federal Supreme Courts. Pound argued the courts' rulings were "simply wrong" from the standpoint of common law and "even from that of a sane individualism" (482). Pound further compared the situation of labor legislation in his time to common opinion of
usuryUsury originally meant the charging of interest on loans. This would have included charging a fee for the use of money, such as at a bureau de change. After countries legislated to limit the rate of interest on loans, usury came to mean the interest above the lawful rate...
and that the two were "of the same type" (484). Pound lamented that the legacy of such "academic" and "artificial" judicial rulings for liberty of contract engendered a "lost respect for the courts", but predicted a "bright" future for labor legislation (486-87).
In 1937 the Court reversed its view in the case
West Coast Hotel Co. v. ParrishWest Coast Hotel Co. v. Parrish, , was a decision by the Supreme Court of the United States upholding the constitutionality of minimum wage legislation enacted by the State of Washington, overturning an earlier decision in Adkins v...
. In that case the court upheld a
Washington stateWashington is a state in the Pacific Northwest region of the United States. Washington was carved out of the western part of Washington Territory which had been ceded by Britain in 1846 by the Oregon Treaty as settlement of the Oregon Boundary Dispute. It was admitted to the Union as the...
law setting a
minimum wageA minimum wage is the lowest hourly, daily or monthly wage that employers may legally pay to employees or workers. Equivalently, it is the lowest wage at which workers may sell their labor. Although minimum wage laws are in effect in a great many jurisdictions, there are differences of opinion...
.
Exclusion clauses
In
George Mitchell (Chesterhall) Ltd v Finney Lock Seeds LtdGeorge Mitchell Ltd v Finney Lock Seeds Ltd [1983] QB 284; [1983] 2 AC 803 is a case on the sale of goods and exclusion clauses. It was decided under the Unfair Contract Terms Act 1977 and the Sale of Goods Act 1979.-Facts:...
, Lord Denning MR compared "freedom of contract" with oppression of the weak.
Literature
- Trebilcock, Michael J.:"The Limits of Freedom of Contract" (Harvard University Press) ISBN 13 978-0-674-53429-2
- Atiyah, P.S:"The Rise and Fall of Freedom of Contract" (Oxford University Press, USA; New ed; Dec 12, 1985) ISBN 13 978-0198255277