Freedom of contract is the freedom of individuals and corporations to form contracts without government restrictions. “Parties should be as free as possible to make agreements on their own terms without the interference of the Courts or Parliament and their agreements should be respected, upheld and enforced by the Court.”
There are many types of contracts surrounding us in our day-to-day life, whether for personal or business reasons. We may have a contract with our employer, landlord, or our mortgage company. We may also have a contract with your insurance company, our auto finance company or our dry cleaner. A company can have a contract with another company. One cannot do most things in this world without a contract.
The term “Contract” is derived from the Latin word “Contractum”. Contract is an agreement that enforceable by law. Contract is exchange of promises. In order to have a contract there must have an offer, an acceptance and consideration. 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, or price fixing. The freedom to contract is the underpinning of laissez-faire economics and is a cornerstone of free market libertarianism. The sanctity of contract means giving recognition to the contractual framework with appropriate legislation.
The term “contract” is derived from the Latin word “contractum”. The Law of Contract is governed by the Contract Act-1872.According to sec-2 (h) of the Act-1872 “An agreement enforceable by law is a contract”. It signifies that in a contract there must be an agreement and it must be enforceable by law. According to Salmond ‘A contract is an agreement creating and defining obligations between the parties’.According to Frederick Pollock ‘Every agreement and promise enforceable at law is a contract’.
From the above definition we find that, a contract essentially consists of two elements:
- An agreement
- Legal obligation i.e. a duty enforceable by law.
As per section -2(e) ‘Every promise and every set of promise, forming the consideration for each other, is an agreement’ thus it is clear from the definition that a ‘promise’ is an agreement. According to section -2(b) “When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted becomes a promise.”
An agreement to become a contract must give rise to a legal obligation i.e., a duty enforceable by law. If an agreement is incapable of creating a duty enforceable by law, it is not a contract. Thus an agreement is wider term than the contract. ‘All contracts are agreement but all agreement are not contract.’ Agreements of moral, religious or social nature are not contracts because they are not likely to create a duty enforceable by law.
Essentials of a contract:
According to Sec-10 of the Contract Act, All agreement are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object and are not hereby expressly declared to be void.
Thus, the essential elements of a valid contract can be summed up as follows
2. Intention to create legal relationship.
3. Free and genuine consent.
4. Parties competent to contract.
5. Lawful consideration.
6. Lawful object.
7. Agreements not declared void or illegal.
8. Certainty of meaning.
9. Possibility of performance.
10. Necessary Legal Formalities.
Types of Contract
The classification of contract is made depending on certain modes. The classification made under certain modes, is not expressly said in the Contract Act, 1872. In law of contract those certain terms of classification are use indicating their lawful meaning. So here is a classification of contract depending on certain moods.
A) Contracts depending on the mood of creation.
Express and implied contract
Express Contract: The offer and acceptance of a contract if made in words, either expressed orally or in written words, the contract will be considered to be an express one. From instance, A proposes B, I would like to sell this house for Tk.3 lack and B replies ’I agree’-this deemed to be an express contract. Thu express contact may be of two types: written contract, and oral contract.
Implied Contract: – An implied contract is formed when the offer and acceptance of a contract is made without the use of any words, rather by some other means. For example, if a repairer start to repair the watch of one person and the later permits it remaining silent knowingly that the first person is doing so to get a payment in exchange of this service, it will be treated as a implied by the law
B) Contracts as regards the mood of time of performance.
a) Executed Contract
b) Executor Contract
If the condition of contract is performed as soon as possible, the contract is said to be an executed contract. On other words, the contract the obligations of which, is already performed, or to be performed in a very short time is the executed contract.
In this contract the obligations of the contract is supposed to be performed at the later period of the formation of the contract. There is no limitation of the performance of the contract in this regard. The contract itself suggests such limitation, unless it is prescribed by law.
C) Contracts as regards the number of parties:
a) Bilateral Contract
b) Unilateral Contract.
Bilateral Contract: It is the apparent rule of a contract that at least two parties are necessary to form a contract. Therefore all contracts are bilateral or multilateral.
Unilateral Contract: In a contract, where one party has to fulfill his obligations whereas the other party has already performed his obligations, it is called unilateral contract.
D) Contracts as regards the mood of enforceability and validity:
a) Valid Contract
b) Voidable Contract
c) Void Contract
Meaning of ‘freedom of contract
Thou shall not take name of the lord God in vain, for the Lord not hold guiltless that take His name in vain
But governments do not limit their concern with contract to a simple enforcement. They take upon themselves to determine what contracts are fit to be enforced… There are promises by which it is not for the public good that person should have the power of binding themselves.
— J. S. Mill
Few who consider dispassionately the facts of social history will be disposed to deny that the exploitation of the weak by the powerful, organized for purposes of economic gain, buttressed by imposing systems of law, and screened by decorous draperies of virtuous sentiment and resounding rhetoric, has been a permanent feature in the life of most communities that the world has yet seen.
— R. H.
Freedom to Contract
A contract is a binding agreement between two or more parties that usually results in some type of performance. Without doubt, trade and commerce could not thrive if freely made agreements were not normally carried out. Contract can be viewed as a method in which men bargaining with one another can make sure that their promises will last longer than their changeable states of mind. The law of contract provides a mechanism through which private individuals can, to a certain degree, predict, control, and stabilize the future. Contracts allow people to incur reciprocal responsibilities and commitments, to make promises others can rely on, to remove some uncertainty from life, and to establish reasonable expectations for future actions.
A function of the state, operating mainly through the court system, is to enforce performance by requiring the promisor to fulfill his bargain on penalty of fine or imprisonment or by awarding judgment against him for money damages when, without legal reason, he fails to perform. State compulsion has replaced private force, which was common in earlier time periods. State enforcement in concerns of bargain and promise can be viewed as one of the state’s most important functions behind only peacekeeping and property defense. In essence, a breach of contract is an indirect use of force.
The Moral Foundation of Contracts
In addition to the above pragmatic foundation for the law of contract, there is a moral basis for requiring a man to keep his promise. Deceit is wrong and should not be practiced. A man should do what he promises to do, particularly when his given word encourages another person, relying on that promise, to take action or make a promise to take action.
Morality, according to Immanuel Kant, requires that a man not make an exception of himself and that he not follow rules or engages in practices that he could not recommend to all persons. As Kant puts it in his categorical imperative, “I ought never to act except in such a way that I can also will that my maxim become a universal law.”
Consider the case in which a businessman is deciding whether or not he should break a contract. If he were to declare the principle of his action to be a universal law such as, “Always break contracts” or “Contract breaking is permissible,” the act of breaking contracts would be self-defeating. The first assertion logically would result in a world in which people always breached their contracts and no one kept his word. Given the second maxim, people would never know whether or not a contract would be kept, and thus the purpose of both keeping a contract and breaking one would be defeated. Successful contract breaking is possible only when it is not made a universal law. Profitable contract breaking can only occur in a world in which contracts are normally honored. If contract breaking were universalized then business practice would become inconceivable and in executable. If a businessman were to advocate universal contract violation, his advocacy would be in vain. Therefore, applying Kant’s categorical imperative, the businessman ought to keep the contract accept, of course, in a case in which his promise was exacted by force or fraud. Fraud is implicit theft in that it involves the failure to fulfill a freely agreed-upon transfer of property.
The right of property includes the right to make contracts regarding that property. The right to contract is derivable from the right of private property. It follows that enforceable contracts are those in which the failure of one party to live up to the provisions of the contract implies the appropriation of property from the other party. Enforceable contracts are those supported by the authorization of legal coercion
From Status to Contract
Contract law is a key component of a free society. Contracts involve a trade-off of flexibility for security and the voluntary assumption of mutual obligation and commitment. Through contract, a participant in civil society is differentiated from the atomistic individual.
Autonomous human beings have the rational ability and natural right to make their own life choices. A necessary condition of acting autonomously is the possibility of freely making mutually binding agreements. Autonomy thus requires freedom of contract. Better connections between persons can be made by contract, which works to mutual benefit, instead of through coercion, which does not.
Although a contract may appear to be the subordination of one man’s will to another, the former gains more than he gives up, as does the latter. In a free society, the only transactions people engage in are positive-sum ones in which both parties believe they will benefit.
Historically, the rise of contract within Western civilization reflected the disintegration of a status-determined society. Contract became a tool of change and self-determination, an instrument of peace, and the only legitimate means of social integration in a free society. Progress depends on protected property rights and the confidence that contractual obligations will be honored.
Sir Henry Sumner Maine, the nineteenth-century legal historian, wrote that progressive societies exhibit a development from status-bound roles to those founded more and more on contractual freedom. Whereas a status system establishes obligations, conditions, and interrelations by birth, contract regards individuals as free and equal moral agents developing their own bonds with others. In a free society, there is high degree of social mobility and freedom to associate in response to current and expected future needs. Social arrangements are a result of the independent decisions of separate individuals pursuing their own interests, rather than by a central powerful authority such as the state or the Church.
In Western society, with the steady dissolution of castes, social classes, guilds, ethnic cultures, and so on, human resources have become more available to organizers in business and other associations. Organizers compete for the best managerial and non managerial employees, and with the freedom of association present in the era of contracts, it is possible to create successful organizations despite some interference by the state.
Freedom to Contract Promotes Progress
In her 1998 book, The Future and Its Enemies, Virginia Postrel explains that, by treating individuals as free and equal generic units, contract permits people to create arrangements far beyond the plans of any grand designers. Only by treating individuals in this manner can over-arching rules allow people to use their own knowledge, express their individuality, and take advantage of their own ideas by joining them and their property in various unanticipated ways. When people cannot make binding, enforceable commitments, dynamic progress is severely hampered. The idea of contract fosters progress by encouraging specialization and allowing an extended order to develop. Postrel also points out the especial importance of well-functioning legal systems when strangers interact in commercial and other situations. In addition, she notes that the goal of contract law is not to inspire legal suits but to settle or avoid them. Well-known rules that eliminate ambiguity make it more likely that promises will be kept.
In order to be invaluable to businessmen and other members of a free society, the contract must be a tool of virtually unlimited adaptability. To achieve this, the legal system must minimize the formality necessary for contractual transactions. It can do this by permitting freedom as to the form and content of contractual arrangements. Contracts have been rewritten through prior restraints (e.g., rent control, minimum wage laws, and interest rate ceilings) and subsequent nullification of contract terms. Legislators and judges should refrain from substituting their own judgments in cases where they believe there is unequal bargaining power or where they think that certain contracts are not in the “public interest.” Contract sanctity is paramount. Such a free contract system encourages dynamic processes and technological achievements by permitting entrepreneurs to quickly and flexibly experiment with new ways of satisfying wants.
Meaning of ‘Sanctity of contract’:
Sanctity of Contract is a general idea that once parties duly enter into a contract, they must honor their obligations under that contract. Whereas, efficient breach theory is that parties should feel free to breach a contract and pay damages, so long as this result is more economically efficient than performing under the contract.
There have some points what are necessary to make clear the idea of sanctity of contract. The points are given below:
Privacy of contracts:
Part of the Sanctity of Contract is the natural right to privacy therein. One absolutely has a right to privacy in one’s agreements with others. One may waive this right to privacy, and one’s right to do so is absolute as well. The Right to Privacy of Contracts and Agreements is a fundamental individual right. Assert this Right for yourself! If, in your contracts you say nothing about private dispute resolution, or you say something like, “disputes will be resolved according to the laws of California,” then the bureaucrats can claim that you made them a party to the contract, that you’ve granted them jurisdiction, and therefore they can interfere with the contract.
Privacy of Contracts
Part of the Sanctity of Contract is the natural right to privacy therein. You absolutely have a right to privacy in your agreements with others. You may waive this right to privacy, and your right to do so is absolute as well.
But consider this: If you do waive your right to privacy, don’t you want to do so knowingly? In the time, place, and manner of you’re choosing?
Some agreements in your life you probably don’t care too much whether lots of other people (not involved in the agreement) know about them. You may not care much whether neighbors know that you often agree to have pizza delivered to your home on short notice. However, you may care a lot about whether all your neighbors know your salary. Do you care whether the IRS knows your salary?
No one but the parties to a contract have the right to know the terms of the contract, unless permission is given by the parties to the contract. Do you think it’s a good idea to give permission to your bureaucratic enemies to know the terms of the contracts and agreements you have in your life? If you agree to be regulated, then you should not object when regulatory bureaucrats try to regulate you. This includes disclosure of information and other invasions of your privacy. Maybe you should take steps to take away your permission to be regulated.
Any aggrieved party may request that the Trustee(s) appoint a mediator acceptable to all parties concerned to resolve a dispute with the Pure Contract Trust Organization through mediation. How the cost of mediation will be shared by the parties concerned shall be determined as part of the mediation procedure. Should mediation fail, arbitration would be the next resort.
Any aggrieved party may request in writing that the Trustee(s) convene a Board of Arbitration to resolve any dispute between the aggrieved party and the Pure Contract Trust Organization. Unless otherwise specified by a prior contract between the aggrieved party and the Pure Contract Trust Organization, the Board of Arbitration shall consist of three (3) persons, independent of the Pure Contract Trust Organization: one selected by the aggrieved party, one selected by the Trustee(s), and the third selected jointly by the two selected arbitrators. The Board of Arbitration shall, after meeting, investigation, and majority agreement, give judgment which shall be binding on all parties. Such judgment shall include the sharing of costs incurred as a result of the arbitration process.” The Right to Privacy of Contracts and Agreements is a fundamental individual right. Assert this Right for yourself! If, in your contracts you say nothing about private dispute resolution, or you say something like, “disputes will be resolved according to the laws of California,” then the bureaucrats can claim that you made them a party to the contract, that you’ve granted them jurisdiction, and therefore they can interfere with the contract.
The political and bureaucratic tyrants in America operate on the basis that the a “Social Contract” under public policy is in full force and effect. In political philosophy, the “social contract” is a crucial theory that lawyers and judges are trained by. The old philosophers dating back to the 1600s agreed that in the pre-social state, man was unwarlike and timid. Therefore, “modern man” requires a “social contract” consisting of laws for mutual protection and a surrender of individual freedom.
The social contract is not a pledge of the ruled to obey the ruler, but is supposed to be an agreement of individuals to subordinate their judgment, rights, and powers to the needs of their community as a whole. The sovereign power doesn’t lie in the ruler, but in the general will of the community. Each person supposedly enters into such a contract by accepting the protection of the communal laws, such as different types of business licenses. In other words, just by being a member of society, one has surrendered his natural rights and is under specific performance to pay his fair share of taxes, etc.
There’s nothing in the U.S. Constitution about any “social contract.” Individuals who stand on their common law and constitutional rights, regard the very notion of “social contract” as an absurd fraud.
Any individual who, by trickery, fraud and deceit, has been inducted into a contractual relation that has resulted in a loss of liberty may seek for redress and grievance as it applies to his case. The common law of contracts provides us with remedies to arrest or review a judgment when there is fraud, misconduct, and lack of service of process, undue influence, mistake, inadvertence or impossibility. These points of law are called “Affirmative Defenses,” and the burden of proof is on the one who affirms.
The Role of the Courts in Contract Affairs:
By the mid-1800s, courts had established the fundamental principles that govern the formation, performance, and enforcement of the bargain contract. They created a complex system of universal rules that mirrored the propositions of classical contract theory. This system assumed that equal parties exist in the marketplace and that each party is competent to choose the terms upon which he is willing to be bound. The presumption of party competence led to the conclusion that courts were not to inquire into the fairness of contracts or contract content, but to exercise restraint and to enforce bargains as made. Their role was to act as “detached umpires or referees, doing no more than to see that the rules of the game were observed and refusing to intervene affirmatively to see that justice or anything of that sort was done.” But courts were not indifferent to the realities of contract practice. Common law doctrines granted the power to avoid contract obligations to minors as well as to those victimized by fraud, duress, and undue influence. These doctrines were narrowly defined and limited in number in order to avoid the adverse consequences that were believed to flow to the economic order from state regulation of private contracting. Except in extraordinary circumstances, courts avoided scrutiny of contract equities on the grounds that efforts to achieve justice in individual cases limited freedom of contract and fostered uncertainty that promises would be kept. Commercial life in this country could ill-afford a system of principles that restricted private autonomy and threatened efficiency in the exchange of goods and services.” Thus, the responsibility of the courts to protect those who were weak and vulnerable did not extend to parties who suffered hardships simply because they failed to protect themselves.
Court Jurisdiction and the Liability of Judges
The Pure Contract Trust is based on:
- The U.S. Constitution being the law of the Parties;
- The obligation of contracts clause being in full force and effect;
- An amendment to the U.S. Constitution being required to change it;
- All statutes, regulations, and court decisions contrary to the obligation of contracts clause being null and void;
- All judges having sworn an oath to uphold the U.S. Constitution – including the obligation of contracts clause;
- Any judges ruling contrary to the obligation of contracts clause are not only violating their oaths of office, but also acting beyond their jurisdiction – and should be prosecuted to the full extent of the law.
- “It is never to be forgotten that in the construction of the language of the Constitution, we are to place ourselves as nearly as possible in the condition of the men who framed that instrument.” Ex Parte Bain, 12 U. S. 1. 7 S. Ct. 781.
- “We are bound to interpret the Constitution in the light of the law as it existed at the time it was adopted.” Mattos vs. U.S., 156 U.S. 237 at 243.
- “It must be interpreted in the light of Common Law, the principles and history of which were familiarly known to the framers of the Constitution. The language of the Constitution could not be understood without reference to the Common Law.” U.S. vs. Wong Kim Ark., 169 U.S. 649, 18 S. Ct. 456.
- “Law of the Land” means the “Common Law.” Taylor vs. Porter, 4 Hill 140, 146 (1843); State vs. Simon, 2 Spears 761, 767 (1884);
- “Neither the Legislative, Executive nor the judicial departments of the Federal Government can lawfully exercise any authority beyond the limits marked out by the Constitution.” Dred Scott vs. Sanford, 19 How, 393.
- “The United States is entirely a creature of the Federal Constitution, its power and authority has no other source and it can only act in accordance with all the limitations imposed by the Constitution.”
“The rights and liberties of the citizens of the United States are not protected by custom and tradition alone; they are preserved from the encroachments of government by express/enumerated provisions of the Federal Constitution.”
- “Where rights are secured by Constitution are involved, there can be no rule making or legislation that will abrogate them.” Miranda vs. Ariz., 384 U.S. 436 at 491 (1966).
- “A Justice’s Court is an inferior court, and its jurisdiction must be shown affirmatively by a party relying upon, or claiming any right under, its judgments.” Jolley v. Foltz (1867), C. 321.
- “A judgment is absolutely void if it appears that there was a want of jurisdiction in the court rendering it either of the subject matter or the person of the defendant.” Hahn v. Morse (1868), C. 391.
The main lesson to be learned here is that if we give up Individual Sovereignty protected by the Law of the Land (Common Law), you then submit to be regulated by statutes such as those of FDR. But those Rights originate from an individual, not from any legislature or bureaucrat. They are protected by the Law of the Land in that Constitution. You should consider conducting many of your affairs outside the jurisdiction of the regulatory bureaucrats. Rely on your Sovereign Rights of Privacy and Contract, which are protected by the plain, clear, and concise language in Constitution: “No state shall pass any law impairing the obligation of contracts.” which has never been overruled for those individuals subject only to the Law of the Land (Common Law).
We do not challenge the right of the legislature to regulate those who agree by (default) contract to be regulated. But we can conduct many of our own affairs privately under the Freedom of contract and Sanctity of Contract,
Thus after the above discussion we came to know that the freedom of contract and sanctity of contract are the dominant ideologies. And parties are free to make their agreements with the interference the courts or parliament.
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