Freedom of contract: influence, restrictions and benefits

Freedom of contract - What is it and why is it important?

Content: 

  • Introduction
  • Restrictions
  • Laws in question
  • Concrete benefit
  • Economic importance 
  • Conclusion and outlook

Freedom of contract is a fundamental concept in law that allows contracting parties to freely negotiate the terms of their agreements. This freedom is part of the general scope of action (Article 2(1) of the Basic Law) and means that every citizen has the right to conclude a contract of his own free will and on his own responsibility. In this regard, there are no legal restrictions that would limit the freedom of the parties to conclude a contract.

Freedom of contract dates back to the 19th century and is an essential component of a liberal constitutional state. It is one of the most important principles of civil law and is enshrined in constitutional law in many countries. It is distinct from general prohibitions such as unlawfulness (Section 134 of the German Civil Code) and immorality (Section 138 of the German Civil Code).

An important aspect of freedom of contract is that it strengthens the freedom of the parties to pursue their interests and to regulate their relationships themselves. The freedom provided by freedom of contract allows them to negotiate the terms of their contract in a way that best suits their needs and desires.

Limitations:

Although there are many advantages to freedom of contract, there are also some limitations. For example, one cannot use freedom of contract to circumvent laws that prohibit or restrict certain types of contracts. In addition, it is settled that freedom of contract does not always lead to fair outcomes. In some cases, one party may exert undue influence over the contract and unreasonably prejudice the other party. To prevent this, there are a number of rules and laws that restrict freedom of contract to ensure a fair outcome. Another example is that one cannot use freedom of contract to harm other people or violate their rights. Accordingly, it borders on the laws of unlawfulness (Section 134 of the Civil Code), immorality (Section 138 of the Civil Code) and, in some cases, consumer protection laws. An important aspect of the freedom of contracts is that it must always comply with the law. This means that a contract is not valid if it violates the applicable law. A court can also declare a contract invalid if it is unreasonable or disadvantages one of the parties. 

Laws at issue:

It is important to note that freedom of contract should not be confused with freedom from arbitrariness. Freedom from arbitrariness states that one party may not use a contract in an unreasonable manner to disadvantage the other party. Thus, freedom from arbitrariness is a limitation on freedom from contracts and guarantees that parties act fairly and reasonably. 

Benefit:

The freedom of contracts is an important protection for the rights and freedoms of citizens and an important prerequisite for the functioning of a vibrant economy. In cases where disputes arise over the content of a contract, a court may be called upon to resolve the disputes. It is important to note, however, that in these cases the court can only review the terms of the contract, but not the freedom of the parties to enter into a contract voluntarily and on their own responsibility. 

Economic Significance:

Freedom of contract has a direct impact on the economy. By being able to freely negotiate and agree on the terms of contracts, companies and individuals can optimally reflect their own interests and needs. This increases the efficiency of market participants and boosts the economy.

Another important factor is that freedom of contract creates more competition. Companies have to compete for customers and make them attractive offers in order to hold their own against competitors. This leads to an improvement in product quality and a falling price level, which in turn benefits consumers.

Freedom of contract also plays an important role at the international level. By being able to conclude international business and trade agreements, companies can expand their sales markets and thus increase their profits. This leads to an increase in prosperity and a strengthening of the economy as a whole.

Conclusion 

In summary, freedom of contract is an important principle in the legal system that allows parties to freely negotiate the terms of their contract. It strengthens the freedom of parties to pursue their interests and self-regulate their relationships and promotes the economy through increased investment and growth. However, it is important to note that there are limitations to ensure that freedom of contract is in accordance with the law and guarantees fair outcomes.

Sebastian Wengryn
CEO

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