The term ‘liberty of contract’ is usually associated with the doctrine that the due process clause of the United States Constitution prohibits or should prohibit the State from regulating contracts between private individuals. Many libertarians and free-market advocates embrace the liberty of contract doctrine because they are averse to State interference with private market transactions. But the term is ironic because a contract is only legally binding if courts will enforce it. Since courts derive their authority because they are the third branch of government, they are State actors and contractual enforcement involves the exercise of the State’s powers of coercion. This is problematic because the exercise of coercion by the State impinges on liberty. This article presumes that the fundamental purpose of the State is to advance liberty and provides an analysis of the relationship between liberty and contract rules and doctrines. Since it is distinctly Hayekian in motivation and spirit, it offers what might be called a ‘Hayekian’ or ‘minimalist’ libertarian theory of contracts. From this perspective, modern contract theories focusing on consent and consideration are welcome because they limit the use of State coercion. Contract rules and doctrines that facilitate relational agreements, such as the statute of frauds, a ‘soft’ parol evidence rule, the use of mercantile practices and customs to interpret contract terms, and the use of ADR all help to advance liberty. Contract doctrines such as unconscionability, impracticability, and the unenforceability of agreements that are against public policy may also help to militate against the inappropriate exercise of State coercion.
Smythe, Donald J, The Illiberty of Contract (September 26, 2016). Quinnipiac Law Review, forthcoming.