According to Lachman (2009), a contract is defined as a promise to another individual to carry out a particular task such as transfer property rights, in exchange for the promise that the individual had made. Contracts enable individuals to incur mutual commitments and responsibilities, to make promises other people can trust in, to establish sensible anticipations for future actions, and to remove some precariousness from life. Freedom of contract is defined as the freedom of corporations and individuals to form contracts without restrictions from the government. The government restrictions include completion law, price fixing, or minimum wage. Freedom of contract supports the laissez-faire economics and acts as free market libertarianism's foundation.
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A free-market economy is enhanced by contractual freedom and this has been a crucial concern for scholars and jurists. It is apparent that commerce and trade could not flourish if agreements were not made freely. Courts enforce agreements but do not supervise the essential content of bargains. Every normal individual is entitled to handle his property the way he or she prefers irrespective of whether his or her bargains are discrete and wise, unprofitable or profitable or otherwise are not a concern for courts of justice. The sanctity of a contract is of paramount importance.
Role of government in promoting the Freedom of Contract
Freedom of contract acts as the foundation of today's contract law and it is accepted that every person is free to determine his or her own affairs and to make a decision on who to contract with. Freedom of contract is very important in the economy of an open market because it ensures that various businesses have the freedom to make a decision regarding who they will supply their services and goods to, and who they wish will replenish their stock for continued business transaction (Younkins, 2000). The voluntary process of exchange encourages economic growth by the efficient distribution of resources as well as through competition. Freedom of contract is considered a moral principle over which contractual obligations are justified in the choice of the parties involved in the contract. The government plays an important role by enacting laws that protect the weaker parties involved in bargaining. These laws are also useful as they keep the freedom of contract from being abused. The justification of the statue laws shows a concern with the evolution of an open and free market, and at the same time its essential content is significant in promoting informed decision making such that the consent of clients is of high quality.
So as to be priceless to businessmen and various members in a free society, it is necessary for the contract to be a tool of nearly limitless adaptability. So that this can be achieved, the legal system has to minimize the requirement that is essential for contractual dealings. The legal system can achieve this by allowing freedom to the content and form of contractual agreements (Younkins, 2000). Contracts are rewritten through anterior restraints such as minimum wage laws, interest rate caps, and rent control and subsequent override of contract terms. Judges and legislators should avoid substituting their personal judgments in cases with unequal bargaining power as well as those contracts away from the public interest. A good example in which freedom to contract is applicable is the Turkey's real estate leases where the weaker of the two involved parties is protected by the government (Lachman, 2009). Leases in Turkey are governed by the law that involves both the freedom of contract and the predilection of modern government that offers protection to the weaker bargaining party. The freedom of contract in Turkey was recognized in 2002 in the Civil Code of Turkey and its scope was fairly increased in 2007.
Importance of freedom of contract
The understanding of freedom to contract improves the quality of individual decision-making and enhances competition because various businesses provide consumers with information concerning the services and goods to be supplied, and these reflect the freedom of contract's voluntarist vision and market vision. Improved consumer decision-making has resulted to modern business in many societies over the world. According to Lachman (2009), the freedom to contract and the government predilection are perceived as contributing significantly to today's business since independence as well as protection of the bargaining parties, are encouraged.
An individual gives so as to receive, and a formal contract frequently protects the arrangement of giving and receiving of goods and services. The contract is very important to the economy of a market because the giving and receiving arrangements are usually determined by contract. It would be impossible for commercial transactions to take place if most contracts were not accomplished in accordance to their terms. Every commercial organization is comprised of several separate activities held together through an aggregation of contracts. The legal enforceability of contracts increases the probability of high performance. Once a bargaining party is aware of facing legal actions if he fails to comply, there is an increased probability of completing his side in the course of the bargain.
By treating people as equal and free generic units, the freedom of contract allows people to make arrangements beyond any grand designers' plans. By treating people in this manner, the dominating rules can allow them to express their identity, apply their own knowledge, and make use of their own ideas by bringing them together and their property in a number of unforeseen ways. If individuals cannot make enforceable commitments, the dynamic commercial progress is seriously hindered. This idea of contract furthers progression by promoting specialization as well as allowing for the development of an extended order. Since commercial situations involve the interactions of strangers, a well-functioning legal system is very significant. Contract law becomes a key element of a free society. Through contract, an individual in a civil society is marked as different from the atomistic person.
A free contract system promotes technological advances and dynamic processes by allowing entrepreneurs to flexibly and quickly try out new options of satisfying needs. Autonomous individuals have the natural right and rational ability to make their own decisions in life. A possibility of making reciprocally binding agreements freely is a necessary condition of behaving autonomously. Autonomy therefore involves freedom of contract (Younkins, 2000). Corporations logically arose from the idea of freedom to contract. A corporation came to existence as individuals voluntarily bound together so as to attain a common goal. Corporate managers, workers, and stockholders have a common interest in the prosperity and survival of a corporation. A corporation can therefore be viewed as a link for a set of contracting arrangements among the corporate managers, workers, stockholders, and other individuals. A corporation is comprised of a set of multilateral and bilateral agreements with various parties such as unions, workers, managers, customers, stockholders, bankers, creditors, retailers, and many other individuals. These individuals get into contracts with the company in which they make an agreement for the business deal.
It has become apparent that commerce and trade cannot flourish if agreements were not made freely. A free contract system promotes technological advances and dynamic processes by allowing entrepreneurs to flexibly and quickly try out new options of satisfying needs. The government plays an important role by enacting laws that protect the weaker parties involved in bargaining. These laws are also useful as they keep the freedom of contract from being abused.