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Introduction To The Law Of Contract (Clarendon) Add in library

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Question:

Discuss the extent to which, and the ways in which, the courts and parliament have eroded the concept of ‘freedom of contract’ with reference to relevant case and statute law?

 

Answer:

Several rules have been created by the courts and also by the Parliament regarding the law of contract that has made an impact on the concept of the freedom of contract. Freedom of contract enjoyed by the parties is the liberty enjoyed by the parties to decide the terms of a contract without any type of interfering by the government (George Mitchell Ltd v Finney Lock Seeds).

The notion of freedom of contractor also been significantly impacted by the recent legislation. For example the Unfair Contract Act has made a significant impact on the notion of freedom of contract. Section 12 of the legislation cannot be excluded from a contract. Likewise, the parties to a consumer contract cannot exclude the provisions mentioned in Sections 13 to 15. This legislation prescribes several requirements and in case these requirements are not fulfilled, a contract can be considered as unfair by the court and therefore not enforceable. In the same way, unfair terms in consumer contacts regulations, 1999 also imposed certain restrictions on the freedom of contract enjoyed by the parties in the past. Section 2(1), Unfair Contract Terms Regulations provide that the parties cannot include any term restricting the liability of a party in case of a death or personal injury suffered by the other party. Similarly, S 2(2) also says that the term that has been inserted in a contract with a view to restrict the responsibility of the party for a loss of property should be reasonable. 

Under these legislations, the terms of a contract have to pass the test of reasonableness. As a result, in case the court comes to the conclusion that any of the terms of the contract can be considered as unreasonable, such a term of the contract can be refused to be enforced by the court.

For example, common law has prescribed several limitations on the amount of damages that can be contracted by the parties which are known as the restrictions on liquidated damages. In the same way, Common law also prescribes restrictions on the maximum length of the agreements regarding not to compete with the employer. It also needs to be noted that in particular during the last 60 years, a large number of rules have been promulgated by the legislative bodies that impose restrictions on the freedom of contract. There are several matters like labor and insurance regarding which it can be said that in a sense they have been removed from free-market. In the same way there are several other commercial activities that have been limited in scope by certain laws, like the antitrust laws. In the same way, another example of the restrictions imposed on the freedom of contract of the parties can be described in the form of a duty prescribed for the employees according to which, the employers cannot discriminate against their employees on the basis of gender, race or religion while making decisions relating to employment.

There is an agreement among the researchers that the rules proposing restrictions on the freedom of contract can be justified if they have been promulgated with a view to protect the parties within the contract or with a view to protect the parties outside the contract. The common law duress includes duress to person, goods and economic duress. It is based on the “will theory” and the underlying principle can be described as the compulsion of the will of the victim due to which the consent of the victim is appreciated and in this way, also the freedom of contract of the victim.

In Lawson v Supasink Ltd (1984) 3 TRL 37, deals with reasonable care and skill as provided by The Supply of Goods and Services Act 1982. In this case damages could be recovered because Supasink had not followed the plans.

These rules limit the freedom of contract enjoyed by the parties. But these rules can be justified if the freedom of contract enjoyed by the parties will be harmful for the society due to reason that the parties or the parties that are outside the contract are not in a position to properly protect themselves.

Sir George Jessel MR had strongly favored the freedom of contract enjoyed by the parties in the decision given in Printing and Numerical Registering Co v Sampson. However, it needs to be noted that the strict principles that have been mentioned in this case have been nearly abandoned during the 20th century as stated by Lord Denning in George Mitchell v Finney Lock Seeds.

In this way, since the time of the judgment of Lord Jessel MR, there have been significant changes made in the principle of the freedom of contract enjoyed by the parties. Now it is considered that the capability of the courts to restrict the terms that can be considered as unfair, that has also been granted by the Parliament, allows for the adoption of more sensible principles that can be used for interpreting contracts. Now there is no requirement for the courts to change the sense of the words in order to arrive at the just result as the courts have the power to scrap the unfair terms of a contract on the basis of the unequal bargaining power is held by a party.

In this way, the parties are not at the utmost liberty to include any terms in the contract regarding which they have agreed and therefore the notion of the freedom of contract has been significantly impacted by the Parliament and the courts.

 

References

Kessler, F. 1943, ‘Contracts of Adhesion – Some Thoughts About Freedom of Contract’ 43(5) Columbia Law Review 629

Atiyah, P.S. 2000, An Introduction to the Law of Contract (Clarendon)

Collins, H. 2003, Contract Law in Context (4th edn CUP)

Case Law

Printing and Numerical Registering Co v Sampson (1875) 19 Eq 462

George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1982] EWCA Civ 5

Photo Production Ltd v Securicor Transport Ltd [1980] AC 827

Levison v Patent Steam Carpet Cleaning Co Ltd [1978] QB 69

Sze Hai Tong Bank Ltd v Rambler Cycle Co Ltd [1959] AC 576

Kessler, F. 1943, ‘Contracts of Adhesion – Some Thoughts About Freedom of Contract’ 43(5) Columbia Law Review 629

Collins, H. 2003, Contract Law in Context (4th edn CUP)

Atiyah, P.S. 2000, An Introduction to the Law of Contract (Clarendon)

Photo Production Ltd v Securicor Transport Ltd [1980] AC 827

Levison v Patent Steam Carpet Cleaning Co Ltd [1978] QB 69

Printing and Numerical Registering Co v Sampson (1875) 19 Eq 462

George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1982] EWCA Civ 5

Sze Hai Tong Bank Ltd v Rambler Cycle Co Ltd [1959] AC 576

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