Restrictions on Freedom of Contract

Collectivism curtails as surely as individualism extends the area of contractual freedom. The reason of this difference is obvious. The extension of contractual capacity enlarges the sphere of individual liberty. According as legislators do or do not believe in the wisdom of leaving each man to settle his own affairs for himself, they will try to extend or limit the sphere of contractual freedom. During the latter part of the nineteenth century the tendency to curtail such liberty becomes clearly apparent. With Irish legislation these lectures are not directly concerned, but, though that legislation has generally been dictated by exceptional circumstances due to the peculiar history of Ireland, it throws, at times, strong light on the condition of English opinion. The Landlord and Tenant (Ireland) Act, 1870, 33 & 34 Vict. c. 46, and still more the Land Law (Ireland) Act, 1881, 44 & 45 Vict. c. 49, are the negation of free trade in land, and make the rights of Irish landlords and of Irish tenants dependent upon status, not upon contract. Legislation of this character would in any year between 1830 and 1860 have been in reality an impossibility, owing to the absence in Parliament, and indeed among the electors who were then represented in Parliament, of the convictions to which the later Irish Land Acts give expression.

Let us here consider with a little further attention the increasing number of cases in which a person belonging to a particular class, e.g. the body of tenant farmers, has been forbidden by law to part under a contract with advantages, such as compensation for improvements, which Parliament intends to secure to the class of which he is a member. Law-making of this sort generally passes through two stages. In the earlier stage the law places upon some kind of contract an interpretation supposed to be specially favourable to one of the parties, but allows them to negative such construction by the express terms of the agreement between them. In the later stage the law forbids the parties to vary, by the terms of their contract, the construction placed upon it by law. The difference between these two stages is well illustrated by the case of a lease made by a landlord to a tenant farmer. As the law originally stood the tenant had no right to compensation for improvements made by him during his tenancy, unless he was entitled thereto by an express term in his lease. This was felt to be a hardship. Parliament, therefore, enacted that it should be an implied term of every lease, unless the contrary were expressly stated therein, that the tenant should receive compensation for improvements. So far there was no interference with the contractual freedom either of the landlord or the tenant, for it was open to the parties by an express term of the lease to exclude the tenant’s right to compensation. It was found, however, that, upon this change in the law, the tenant’s right was habitually excluded by the terms of the lease, and that he did not therefore receive the benefit which the legislature hoped to confer upon him. The next step was for Parliament absolutely to prohibit the bargaining away of his right by the tenant. Here the inroad upon contractual freedom is patent. The necessity for forbidding the tenant to contract himself out of the statute is no proof that the policy of conferring upon him an absolute right to compensation was unsound, but it is conclusive evidence that landlords were ready to purchase and tenants were ready to sell the rights conferred upon them by statute, and that the Act, which prevents the parties to a lease from making the bargain which they are willing to make, does curtail the freedom of contract. The transition from permissive to compulsory legislation bears witness to the rising influence of collectivism.