Discuss the concept of “Freedom of contract and sanctity of contract under the law of contract

1.       Introduction:

The statement describes that freedom of contracts and sanctity of contracts are particulars for large companies that how they want their contract should be and without inference of government.[1]

          As to evaluate this statement I divided my repent into revenant parts like what is Law of contract. Freedom of contract & sanctity of contract why parties wants the freedom of contract and under the law of contract. The reason for limiting freedom of contract in some areas.

2.1     Law of contract

 The law of contracts deals with agreements between parties which can be enforced by law.[2] Section 2 (h) of the Indian contract act. “An agreement enforceable by law is contract.

The law of contract agreements are set of contain promises and enforceable by law after fulfill certain condition they are:

a)       Offer & Acceptance:

There must be lawful offer from parts and lawful acceptance from other party. Both the makes the contract essential. [3]

b)      Intention to create legal relation:

Cannot become effective contract if there is no intention for legal relation. Inundation must be attend by legal consume and enacts legal obligations.

c)       Consideration:

The agreement is not enforceable by law unless each party to the agreement gets smoothing. The smoothening are Consideration.[4] Consideration is a benefit gets from the promissory to promise.

d)      Capacity of parties:

Under section “contracts act. States that,” Every person is competent to contract who is of the age of majority according to the law to which he is subject and who is at sound mind, and is not disqualified from contracting by any law to which he is subject.

e)       Free Constant:

Under section 13: “Two or more persons are said to consent when they agree upon the same thing in the same sense”.

f)       Legality of the object:

The object cannot be illegal or immortal.[5]

g)       Possibility of performance:

The both parties, promissory and promise should have to capacity to perform to make contracts.

h)       Void Agreement:

Under the contract act, them are five categories of agreements which are expresses declared to be void.

i)                   Agreement in restraint to marriage. (Sec-26)

ii)                  Agreement in restraint of trade (Sec-27)

iii)               Agreement in restraint of proceedings (Sec-28)

iv)               Agreement having uncertain meaning. (Sec-29)

v)                 Wagering agreement

i)                   Contingent Contract :

“A contingent contract is a contract to do or not to do something, if some event, collateral to such contract, does or does not happen” [6]

j)                   Performance of the Contract:

Contracts which must be performed. The parties have to perform or their offer or promises must perform. Because contract create the legal obligation for the parties to perform.

k)       Termination or Discharge of Contracts:

When the contract come to en it may terminated in many ways. If the contract terminated the compensation have to give for damage caused by breach of contracts

l)        Quasi Contract:

Claim for necessaries supplied to person incapable of contracting or on his account. Reimbursement of person paying money due by another in payment of which he is interested. Obligation of person enjoying benefit of non-gratuitous act. Responsibility of finder goods. Liability of person to whom money is paid or thing delivered by mistake or under coercion. [7]

m)      Indemnity & Guarantee:

Indemnity is contract by which one party provides promises to other party to save from loses while performing his promises to another party. A contract of guarantee is a contract to perform the promises the liability of a third person in case of his default. The person who gives the guarantee is called the ‘surety’. A guarantee may be either oral or written.

n)       Bailment & Pledge:

Bailment is delivery the goods by one part to another party for purpose, when it is accomplished are returned or otherwise disposed of according to the directions of the persons delivering them.

Pledge is to provide security for a debt or the performance of a promise .

o)      Law of Agency:

It defines the appointment and the authority of agent. An agent is a person employed to represent for another with third person. No consideration is needed to create an agency.

These elements makes the agreement and enforce the law.

2.2     Freedom of contracts, and sanctity of contract?

Whereas freedom of contract is freedom of companies to make their contract without government restriction.[8]

Theory defines that is law of contract is an agreement enforceable by law. Whereas freedom of contract is also contract but it wants low participation of court.

“Every man is the master of the contract he may choose to make: and it is of the highest importance that every contract should be construed according to the intention of the contracting parties.”

The principle of sanctity of contract, it takes a hard line against excuses for non performance. Secondly , the ground rule should be clear.

 The principle of sanctity of contract has a double emphasis. First, if parties must be held to their bargains, they should be treated as masters of their own bargains, and the courts should not indulge in ad hoc adjustment of terms which strike them as unreasonable or imprudent. Secondly, if parties must be held to bargains, then the courts should not lightly relieve contractors from performance of their agreements. It will be appreciated that, while freedom of contract is the broader of the two principles, it is sanctity of contract which accounts for the distinctive market-individualistic stand against paternalistic intervention in particular cases.[9]

3.       Why parties want freedom of contract & sanctity of contract?


3.1     Freedom of contracts help parties to create the agreements only use their own knowledge. So that it helps to fulfill individual requirement and omit ambiguity rules.

3.2     In order to be invaluable to businessmen and other members of offer society, the contract must e a tool of virtually unlimited adaptability. To achieve this, the legal suggested must minimize the formalist necessary for contractual inundation it can do the by permitting freedom as to the from and content of contractual arrangement. Contract sanctity is paramount. Freedom of contract ensure progress by allowing the parties to make agreements fungible, to satisfy their wants with new experimental way.[10]

3.3     This suggests that the court do as little as is necessary to make commercial sense of contracts without interfering mode than they should. At could be agued that interfering beyond what is needed would be putting a spanner in the works as it may affect the achievement of the intentions of the parties.[11]

3.4     To make money organizing and managing these risk pools, an insurer must carefully analyze the likelihoods and costs of possible adverse events; he must calculate the proper prices to charge customers in exchange for the promised payments; he must set these prices at levels that enable him to make a profit while offering a value to customers; and so on. In short, to establish and maintain a profitable insurance business, the insurer must think rationally and act accordingly—and, to do so, he must be free to enter or refuse to enter contracts according to his own best judgment.

3.5     Likewise, a potential customer must decide whether the benefits offered by a prospective insurer are worth the price of the premium. He must consider his personal health, lifestyle, financial situation, and future plans. He too must think rationally and act accordingly—and, to do so, he too must be free to enter or refuse to enter contracts according to his own best judgment.

3.6     The idea of the sanctity of contracts is necessary in a capitalist economic system as it ensures that both parties in a contract honor and respect the terms and conditions agreed upon in a contract. This helps to ensure that there is no absconding of duties and that both parties deliver as agreed upon in the contract. It also ensures that there is money in the economy as services delivered are paid for. [12]   


 4.       The Extraordinary Importance of Contract Law:

Contract law lies at the heart of system of laws and serves as the foundation of entire society. This is not amplification. It is a simple observation. Society depends upon free exchange in the marketplace at every level. Contract law makes this possible. Exchanges in the marketplace always depend upon voluntary agreements between individuals or other “legal persons”. Such voluntary agreements could never work without contract law.

Contract law serves to make these agreements “enforceable”, which usually means that it allows one party to a contract to obtain money damages from the other party upon showing that the latter stands in breach.

Without contract law, these voluntary agreements would instantly become impractical and unworkable

Stated more precisely, it is contract law makes possible the many private, voluntary agreements by which exchanges of goods and services are accomplished in our society at every level. No exchange is exempt from the contract law, which indeed can be rightly called the cornerstone of marketplace civilization. [13]

  5.       Reason for limiting freedom of contract

Main reason for limiting freedom of contract the one.

5.1     Commoditization

          It may encourage the Commoditization of certain goods or relation such as role of on public officers. Sale of blood or body ordnances “A private portents private exchange system depend for on its stability on the system dying non universal.[14]

It certain goods or relation stated selling it may destabilize the private sphere.[15]

5.2     Externalities

Externalities mean the imposition of cost on benefits from a particular exchange on non-consenting third parties. It scribes the presence of the presence of third party effects one are liberal and pervasive “Once one moves beyond rather tangible horm to third parties, many activities might be viewed as generating some externalist composes costs pm dependants the social welfare system on the public heaths care system), including” indulged dietary on exercise regimens, excessively stressful work hails, riski leisure activities.[16]

5.3     Coercion

“Imperfect information on behalf of one on bothe the traditional common Law rule of consideration which raises a party different question that of the conformability of promises.[17]

d) Recrimination on antidiscrimination based on personal characteristics.

6.       Why are the courts so reluctant to interfere in contract?

Freedom & sanctity of contract are particularly with regards to large companies and firms, they should be allowed to contract how they like and what they like without the courts imposing what they believe to be the best option. The courts do as little as is necessary to make commercial sense of contracts without interfering more than they should. It could be argued that interfering beyond what is needed would be putting a spanner in the works as it may affect the achievement of the intentions of the parties. [18]

 7.       Conclusion

After evaluating the statement I have come to an end that, a contract is a binding agreement between two or more parties that usually result s from some performance. This can be done through bargaining with one another can make sure that their promises will last longer. The principle of sanctity of contract is a thread which runs through contract from beginning to end, enjoining the courts to be ever-vigilant in ensuring that established or new doctrines do not become an easy exit from bad bargains. The law of contract provides a mechanism through which private individual can predict, control, stabilize the future.


  1. AK Sen, commercial law,
  2. CIMA Bangladesh
  3. City in trebicok 1993: 23
  4. http://en.wikipedia.org/wiki/freedom-of-conract
  5. http://www.oup.com/uk/orc/bin/9780199579792/mckendrick4e_ch01.pdf
  6. http://cn, wikipedia.org/wiki/freedom-of-association.
  7. http://jesz.ajk.ctt.cse13.html.
  8. http://digitalcommons.law.yale.edu.cgi/viewcontent.cgi…..
  9. http://people.ischool.brekely.edu/…..

10. http:www.quebecoislibre.org/younkins25.html

  1. http://www.ask.com/answer
  2. http://www.maldonadomarkham.com/Contract-lawyer-San-Diego.html
  3. Sajo 2002
  4. The contract act ,1872

15. www.businessdictionary.com

16. www.busnessdictiorang.com

17. www.ohll.ca/archive/articles/33……

18. www.jstor.org/stable/1109442

19. www.ohll.ca/archive/articles/33……

[1] www.businessdictionary.com

[2] AK Sen, commercial law, page-113, page-1

[3] CIMA Bangladesh

[4] AK Sen, Commercial Law, page-34, paragraph-I

[5]  AK Sen, commerceial Law, page-15.

[6] The contract act ,1872.sec-31

[7] The contract act ,1872.sec-68-72

[8] http://en.wikipedia.org/wiki/freedom-of-conract

[9] http://www.oup.com/uk/orc/bin/9780199579792/mckendrick4e_ch01.pdf

[10] http://cn, wikipedia.org/wiki/freedom-of-association.

[11] www.busnessdictiorang.com

[12] http://www.ask.com/answer

[13] maldonadomarkham.com/Contract-lawyer-San-Diego.html

[14] City in trebicok 1993: 23

[15] http://jesz.ajk.ctt.cse13.html.

[16] http://jesz.ajk.ctt.cse13.html.

[17] Sajo 2002

[18] http://www.lawstudentforum.co.uk