Freedom of Contract

Freedom of contract is defined as the: “Right of an adult to make a legally binding mutual agreement with one or more other persons, without governmental interference as to what type of obligations he or she can take upon himself or herself. ”[1] English law has for a while now been known as believing in freedom of contract. This means that the state has not, normally, enforced legislation which has got in the way when it comes to the freedom of parties to accept the terms of their contracts.

When looking more recently, there has been numerous advances into the principle of freedom of contract, above all when looking at consumer protection. It still happens to be the case that English law does give parties substantial flexibility both as how they finish contracts and the terms that they include. To understand how freedom of contract is seen in English private law, it is important to understand things such as offer and acceptance and implied terms within a contract. “Offer and acceptance analysis is a traditional approach in contract law used to determine whether an agreement exists between two parties.

Agreement consists of an offer by an indication of one person (the “offeror”) to another (the “offeree”) of the offeror’s willingness to enter into a contract on certain terms without further negotiations…”[2] For it to amount to an offer it has to be shown that the offeror had the purpose to be bound. This is seen in Harvey v Facey [1893] UKPC 1. The outcome of this case resulted in “The Privy Council held that there was no contract concluded between the parties. Facey had not directly answered the first question as to whether they would sell and the lowest price stated was merely responding to a request for information not an offer.

There was thus no evidence of an intention that the telegram sent by Facey was to be an offer. ”[3] It is important to separate an offer from an invitation to treat. While an offer will show the way to a binding contract upon acceptance, an invitation to treat cannot be accepted; it is just an invitation for offers. An example of an invitation to treat can be seen in Fisher v Bell [1961] 1 QB 394 where “the defendant had a flick knife displayed in his shop window with a price tag on it. Statute made it a criminal offence to ‘offer’ such flick knives for sale.

His conviction was quashed as goods on display in shops are not ‘offers’ in the technical sense but an invitation to treat. The court applied the literal rule of statutory interpretation. ”[4] When legitimate acceptance comes about a binding contract is established. As a result it is vital to know what a valid acceptance consist of in order to establish if the parties are bound by the agreement. There are three major rules when it comes to acceptance: 1. The acceptance has to be communicated to the offeree. 2. The terms of the acceptance need to exactly match the terms of the offer.

3. The agreement has to be certain. English law allows contracting parties the freedom to set lots of the terms that contract the business. However this will be subjected to two areas where the law will imply terms. Firstly, some terms will be implied by statute. Secondly, the courts will imply terms just to give “business efficiency” to a contract. The main terms implied by statute in the Sale of Goods Act 1979 consist of: “1. Section 12: the person selling the goods has to have the legal right to sell them.

2. Section 13: if you’re selling goods by description, e. g.from a catalogue or newspaper advert, then the actual goods have to correspond to that description. 3. Section 14: the goods must be of “satisfactory quality” – that is, they should meet the standard that a reasonable person would regard as “satisfactory”. Also, if the buyer says they’re buying the goods for a particular purpose, there’s an implied term that the goods are fit for that purpose. 4. Section 15: if you’re selling the goods by sample – you show the customer one bag of flour and they order 50 bags – then the bulk order has to be of the same quality as the sample. ”[5]

When it comes to terms implied by the courts: “1. As a matter of fact. Something that’s so obviously included that it didn’t need to be mentioned in the contract. If I agree to pay you ? 50 for a lawnmower, it probably wouldn’t occur to us to write down that we mean fifty pounds sterling, as opposed to any other sort of pound. That’s obvious to both of us. (Beware of this point – it has to have been obvious to both parties – it’s not enough to show that one party thought it was included, or that the contract would have been more reasonable with the added term. ) 2. As a matter of law.

This is about general considerations of public policy – the courts are laying down, as a matter of law, how the parties to certain types of contract ought to behave. For example, in one case, the courts held that landlords of blocks of flats ought to keep the communal areas (lifts, stairs etc) in a reasonable state of repair – so that term was implied into the rental contract. 3. Customary terms. Some terms are generally known to be included in contracts in a particular trade or locality. Amongst bakers, “one dozen” means thirteen – they don’t have to include terms in every contract specifying that.

”[6] The law of contract, similar to the legal system itself, involves an equilibrium between different sets of values. Freedom of contract expresses the need for steadiness, assurance, and inevitability, but, as significant as these values are, they are not absolute, and there is always a time where those most vulnerable need protection. The law was able to see that not all parties have the same bargaining power as was beforehand thought. One group that were mainly affected were consumers. Because of this, new regulations were implemented.

I think this has been beneficial to the English law. Not only does it make sure of social justice, it also readdresses equality of bargaining power. This is chiefly an advantage to those disadvantaged from the start. The idea of freedom of contract is not always seen as perfect one. In Suisse Atlantique Societe d’Armement Maritime S. A. v N. V Rotterdamsche Kolen Centrale [1967] 1 AC 361. Lord Reid said, at p. 406: “”Exemption clauses differ greatly in many respects. Probably the most objectionable are found in the complex standard conditions which are now so common.

In the ordinary way the customer has no time to read them, and if he did read them he would probably not understand them. And if he did understand and object to any of them, he would generally be told he could take it or leave it. And, if he then went to another supplier the result would be the same. Freedom to contract must surely imply some choice or room for bargaining. “[7] This shows that for a person who is not an expert in a field, freedom of contract is not important. Regardless of fresh regulations and legislations I believe that in most of cases, the freedom of contract remains.

As said by Lord Denning in Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd [1968] AC 269: “I myself have always regarded it as in the public interest that parties who, being in an equal position of bargaining, make contracts, should be compelled to perform them, and not to escape from their liabilities by saying that they had agreed to something which was unreasonable. “[8] There are studies that exist that agree with Denning’s thoughts. Two top judge-watchers are Adams and Brownsword who both set out their framework in an article ‘The Ideologies of Contract Law’.

Adams and Brownsword find two opposite judicial ideologies: formalism and realism. From the formalist viewpoint, the judicial role is just seen as putting the rules in the rule-book in spite of of the outcome. When it comes to the realist, however, the judicial role is to make satisfactory decisions despite of what the rule-book states. Realist judges come under two categories. They are ‘market-individualists’, or ‘consumer-welfarists’. Market-individualists stick to the principle of freedom of contract. They believe the purpose of contract law is helping competitive exchange in the marketplace.

This role is best made successful by allowing individuals to make their own bargains. It points to the fact that the courts should interfere minimally in the economic actions of the marketplace. On the other hand, consumer-welfarists are known as communitarians. They look at the role of contract law as regulation of the economic actions of individuals in the marketplace. Therefore, the courts should willingly intervene so to look after weaker parties, for example, consumers – from the unjust and irrational use of economic power by more powerful parties.

This proves that regardless of legislation apparently destructive of freedom of contract, the genuine understanding of the law agrees with it due to the fact that bargaining power is equal. This is along the same line as thinking in the USA. American law has usually allowed private parties to move forward their own interests by way of contracts. I believe this is the best way of dealing with private contracts. Especially if bargaining power is equal. However, one could argue that in spite of equality of bargaining power, freedom of contract is still not given respect by the law and its legislation.

Look at The Unfair Contract Terms Act 1977. The Act was legislated in order to give a considerable amount of regulation of the use of exemption and limitation clauses. It extended prior requirements in the Sale of Goods (Implied Terms) Act 1973, that were to do with contracts for just the sale of goods. Regardless of the fact it appeared to be legislation to look after inferior parties to the contract for example the consumer in a seller/supplier association, it also regulates those that negotiated the terms individually.

Big companies and businesses can become involved in buying and selling to one and other. They possess the resources to be able to negotiate terms individually within a contract. Therefore, as suggested by Denning they should not be able to leave out liability or run away from the contract on grounds like unreasonableness. Another example where the court shows little respect for freedom of contract is where the courts have tried to reduce the amount to which control over penalty clauses consists of control over agreement.

Therefore, the law which looks at penalty clauses is typically shown in the books as a division of the law of remedies, instead of enforceability. There are factors that point to convenience that may rationalize this approach, however, it is clear that in relieving against penalty clauses, the courts are restraining the freedom of contract . I believe that the idea that freedom of contract is the bedrock of English private law still exists inside the law today however it is more concerned with the interpretation and purpose of the law by judges rather than the actual legislation itself.

Taking a broader view, I believe that law has to an extent restricted such an idea but this has been beneficial for the UK population as a whole. It has given us legislation and regulation which gives us protection in the many contracts we make everyday. I do not believe that this has been to the cost of the larger companies getting involved in privately negotiated contract. I believe that this is seen by the courts and a smaller protection, even none, is applied to them due to this. Word Count: 1960 Bibliography 1. http://www. businessdictionary.

com/definition/freedom-of-contract. html 2. http://en. wikipedia. org/wiki/Offer_and_acceptance 3. http://e-lawresources. co. uk/Harvey-v-Facey. php 4. http://e-lawresources. co. uk/Fisher-v-Bell. php 5. http://www. tutor2u. net/law/notes/contract-express-implied-terms. html 6. http://www. tutor2u. net/law/notes/contract-express-implied-terms. html 7. Suisse Atlantique Societe d’Armement Maritime S. A. v N. V Rotterdamsche Kolen Centrale [1967] 1 AC 361 8. Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd [1968].

AC 269 ———————– [1] http://www.businessdictionary. com/definition/freedom-of-contract. html [2] http://en. wikipedia. org/wiki/Offer_and_acceptance [3] http://e-lawresources. co. uk/Harvey-v-Facey. php [4] http://e-lawresources. co. uk/Fisher-v-Bell. php [5] http://www. tutor2u. net/law/notes/contract-express-implied-terms. html [6] http://www. tutor2u. net/law/notes/contract-express-implied-terms. html [7] Suisse Atlantique Societe d’Armement Maritime S. A. v N. V Rotterdamsche Kolen Centrale [1967] 1 AC 361 [8] Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd [1968] AC 269.