Freedom of contract
Encyclopedia
Freedom of contract is the freedom of individuals and corporations to form contracts without government restrictions. This is opposed to government restrictions such as minimum wage, competition law
Competition law
Competition law, known in the United States as antitrust law, is law that promotes or maintains market competition by regulating anti-competitive conduct by companies....

, or price fixing. The freedom to contract is the underpinning of laissez-faire
Laissez-faire
In economics, laissez-faire describes an environment in which transactions between private parties are free from state intervention, including restrictive regulations, taxes, tariffs and enforced monopolies....

economics and is a cornerstone of free market libertarianism
Libertarianism
Libertarianism, in the strictest sense, is the political philosophy that holds individual liberty as the basic moral principle of society. In the broadest sense, it is any political philosophy which approximates this view...

.

History

Henry James Sumner Maine
Henry James Sumner Maine
Sir 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...

 proposed that social structures evolve from roles derived from status
Social status
In sociology or anthropology, social status is the honor or prestige attached to one's position in society . It may also refer to a rank or position that one holds in a group, for example son or daughter, playmate, pupil, etc....

 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 libertarianism such as that advanced by Robert Nozick
Robert Nozick
Robert Nozick was an American political philosopher, most prominent in the 1970s and 1980s. He was a professor at Harvard University. He is best known for his book Anarchy, State, and Utopia , a right-libertarian answer to John Rawls's A Theory of Justice...

 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 York 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 Court
Supreme Court of the United States
The Supreme Court of the United States is the highest court in the United States. It has ultimate appellate jurisdiction over all state and federal courts, and original jurisdiction over a small range of cases...

 used the "due process
Due process
Due process is the legal code that the state must venerate all of the legal rights that are owed to a person under the principle. Due process balances the power of the state law of the land and thus protects individual persons from it...

" clause in the 14th Amendment
Fourteenth Amendment to the United States Constitution
The Fourteenth Amendment to the United States Constitution was adopted on July 9, 1868, as one of the Reconstruction Amendments.Its Citizenship Clause provides a broad definition of citizenship that overruled the Dred Scott v...

 to declare unconstitutional the New York state statute imposing a limit on hours of work. In Lochner v. New York
Lochner v. New York
Lochner vs. 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 that a baker could work each day to ten, and limited the...

, Justice Peckham
Rufus Wheeler Peckham
Rufus 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 Holmes
Oliver Wendell Holmes, Jr.
Oliver Wendell Holmes, Jr. was an American jurist who served as an Associate Justice of the Supreme Court of the United States from 1902 to 1932...

 accused the majority of basing its decision on laissez-faire
Laissez-faire
In economics, laissez-faire describes an environment in which transactions between private parties are free from state intervention, including restrictive regulations, taxes, tariffs and enforced monopolies....

 ideology. He believed that they were making law based on economics 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 Pound
Roscoe Pound
Nathan Roscoe Pound was a distinguished American legal scholar and educator. He was Dean of Harvard Law School from 1916 to 1936...

 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 usury
Usury
Usury Originally, when the charging of interest was still banned by Christian churches, usury simply meant the charging of interest at any rate . In countries where the charging of interest became acceptable, the term came to be used for interest above the rate allowed by law...

 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).

The Supreme Court applied the liberty of contract doctrine sporadically over the next three decades, but generally upheld reformist legislation as being within the states' police power. In 1937 the Court reversed its view in the case West Coast Hotel Co. v. Parrish
West Coast Hotel Co. v. Parrish
West Coast Hotel Co. v. Parrish, , was a decision by the United States Supreme Court upholding the constitutionality of minimum wage legislation enacted by the State of Washington, overturning an earlier decision in Adkins v. Children's Hospital,...

. In that case the court upheld a Washington state law setting a minimum wage
Minimum wage
A minimum wage is the lowest hourly, daily or monthly remuneration that employers may legally pay to workers. Equivalently, it is the lowest wage at which workers may sell their labour. Although minimum wage laws are in effect in a great many jurisdictions, there are differences of opinion about...

.

Exclusion clauses

In George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd
George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd
George Mitchell Ltd v Finney Lock Seeds Ltd [1982] , [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


External links

The source of this article is wikipedia, the free encyclopedia.  The text of this article is licensed under the GFDL.
 
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