Freedom of Contract

April 10, 2005

Voluntary agreements are the foundation of a libertarian society, and accordingly the Libertarian Party's Statement of Principles declares, "we oppose all interference by government in the areas of voluntary and contractual relations among individuals." Without freedom of contract, liberty would be meaningless; and without respect for contracts, society would fall apart. However, there are at least two areas where law is relevant to contracts: implicit terms and enforcement.

Firstly, there are many situations where two parties enter into a transaction without specifying every detail of their agreement. It is both reasonable and expedient to expect certain common understandings to be in effect. But this leaves plenty of room for confusion in the case of conflict, which the common law can help to resolve.

A classic example is that a product offered for sale labeled merely Milk is assumed to be cow milk, rather than, say, goat milk or soy milk. It is not and should not be illegal to sell goat milk or soy milk, but they must be labeled clearly, and not doing so is fraud.

Likewise, when a customer enters a restaurant and orders and consumes food there, there is no need for the restaurant to specify in legal language that the customer thereby agrees to pay for the ordered food. It is left as a cultural assumption formalized in law.

Secondly, when one party contends that the other party violated their presumably voluntary agreement, the complaining party will often desire to enforce the contract. In many cases this may merely mean not performing their own obligations under the contract, such as not paying for services that were not rendered satisfactorily. Such actions are unquestionably voluntary and need not involve anyone else.

But when enforcement involves taking actions against the other party, others in the community may become interested. The complainant might enlist the help of others to take enforcement action, and the respondent might enlist the help of others to prevent that enforcement action. Therefore those others in the community must decide whether to help or hinder the enforcement action, or to stay out of it, and it is reasonable and desirable to formalize such decisions into law.

At the most basic level, deciding whether to get involved and on which side is a matter of determining the facts and interpreting the contract itself. To that extent the parties might both be satisfied by entering into binding arbitration.

However, the conflict may instead be about the context and even the morality of the contract rather than merely the facts as they relate to the content of the contract. A contract is not an objective absolute, and neither is either party's consent to the contract.

Consent is reduced under duress, or in the presence of force or fraud generally. Consent is also reduced by not understanding the details of the contract, particularly when rushed or pressured by the social context. It is all too common for one party, backed by significant legal resources, to write up a dense, lengthy contract such that the other party's only understanding of the contract comes from the first party's verbal assurances rather than the text of the contract itself. Enforcing the technicalities of such a contract is morally illegitimate. The above discussion of implicit contracts applies equally to obfuscated portions of explicit contracts.

There are also forms of contract that are inherently morally illegitimate. It is impossible to sign away one's self-ownership. If one sells oneself into slavery out of desperation, the larger community must not be party to enforcing that contract. It does not matter that the "seller" has presumably consented to the contract; they are to be pitied, not prosecuted. And the "buyer" has demonstrated their own moral corruption by going through with the transaction. If I get involved it will always be to free the seller and possibly prosecute the buyer, never the other way around. §

Sampson Synergetics

Copyright 2005 by Justin T. Sampson