Individualism

What the premise assumes away

This is the part MU's blank label is really asking for, because a heading with nothing after it is an invitation to say what the idea gets wrong.

It assumes away inequality of bargaining power. The employee, the insured, the passenger, the borrower and the consumer do not negotiate. Taken in full in [Inequality of Bargaining Power].

It assumes away the standard form. Individualism describes two merchants haggling; most contracts are a printed document one party wrote and the other signed. Taken in full in [The Standard-form Contract].

It assumes away information. A party cannot be the best judge of their own interest in respect of facts they do not have, which is why the Act itself carries sections 17 and 18 on fraud and misrepresentation and why the modern consumer statutes carry disclosure duties.

It assumes away third parties. Two parties may strike a bargain that suits them both and harms someone else, and section 23's public policy limb exists because of exactly that.

And it assumes that walking away is a real option. For a person who must have electricity, employment, credit, transport or medical treatment, refusing the terms is not a choice, and a freedom that cannot be exercised is not one.

How the law responded, in four moves

A good answer ends here, because it converts a description of an idea into an account of a century of law.

The Act's own controls, from 1872. Section 16 on undue influence, sections 17 and 18 on fraud and misrepresentation, section 23 on unlawful object and public policy, and sections 26 to 30 voiding restraint of marriage, restraint of trade, restraint of legal proceedings and wagers. The drafters did not believe the premise without qualification, and the Act says so in its own sections.

Judicial control. Reading exemption clauses strictly against the party who drafted them, and treating a term imposed where the weaker party had no real choice as unconscionable and opposed to public policy.

Statutory intervention. Rent control, minimum wages, industrial relations, insurance regulation and consumer protection, each removing a term from the parties' hands. Taken in full in [Encroachment on Freedom of Contract: the Statutes] and in Module II's [Legislative Intervention].

Constitutional overlay. Where the contracting party is the State within article 12, article 14 controls the terms it may impose, which is what made Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly, (1986) 3 SCC 156 possible.

Worked example

MU prints the label with nothing after it, so an answer must supply structure of its own.

Give the three propositions, and derive the two consequences.

Read section 10 as an individualist section, and list what it does not require.

Give the five things the premise assumes away.

Close on the four moves, ending with the constitutional overlay.

What it does NOT mean

It does not mean individualism is discredited. Freedom to contract remains the rule and intervention the exception.

It does not mean the 1872 drafters were naive. Sections 16, 23 and 26 to 30 are their own qualifications.

And it does not mean equality is required for a contract. It is assumed, and where the assumption fails the law intervenes rather than voiding the contract for inequality as such.

Quick revision

• Three propositions: the parties are free; the parties are equal; and each is the best judge of their own interest.
• Two consequences: the court's job is to enforce, not to evaluate, which Explanation 2 to section 25 states by providing that inadequacy of consideration does not void an agreement; and the State's job is to stay out, which is laissez faire in its private-law form.
• Section 10 read as an individualist section: it requires free consent, competence, lawful consideration, lawful object and the absence of an express statutory avoidance, and it does NOT require that the terms be fair, the price reasonable, the parties comparable, the document understood, or the exchange mutually beneficial.
• Also individualist: section 37, the parties must perform; and section 73, damages measured by the loss which naturally arose in the usual course of things, not by what the court thinks the bargain ought to have produced.
• Five things the premise assumes away: inequality of bargaining power; the standard form; information, which is why sections 17 and 18 exist; third parties, which is why section 23's public policy limb exists; and that walking away is a real option, which it is not for a person who must have electricity, employment, credit, transport or treatment.
• Four responses: the Act's own controls from 1872, being section 16, sections 17 and 18, section 23 and sections 26 to 30; judicial control, by strict construction of exemption clauses and by treating an imposed term as unconscionable; statutory intervention, in rent, wages, industrial relations, insurance and consumer law; and the constitutional overlay, where article 14 reaches a State contracting party under article 12.

Test yourself

1. What are the propositions of contractual individualism and what follows from them? Three propositions. The parties are free, in that nobody is compelled to contract and a party who dislikes the terms may walk away. The parties are equal, in that neither can dictate to the other because each has the same power to refuse. And each is the best judge of their own interest, because a person knows their own circumstances better than a court can, so that the bargain struck is by definition the right one for them.

Two consequences follow, and they are the operative content of the idea. The court's job is to enforce rather than to evaluate: if the parties are equal and each knows their own interest, then a bargain that looks harsh is one the loser accepted for reasons the court cannot see, and Explanation 2 to section 25 states exactly that by providing that inadequacy of consideration does not void an agreement. And the State's job is to stay out, which is the doctrine of laissez faire in its private-law form, resting on the proposition that interference in a bargain reduces the welfare of both parties, since each had valued what they received above what they gave up.

2. Where does the Act show the premise, and what does section 10 not require? Section 10 is an individualist section: all agreements are contracts if made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and not expressly declared void by the Act. What it does not require is the revealing part. It does not require that the terms be fair, that the price be reasonable, that the parties be of comparable means, that either party understand the document, or that the exchange benefit both. Its whole content is capacity, consent, legality and the absence of a statutory prohibition, and everything else is left where individualism leaves it, with the parties.

Three further features point the same way. Explanation 2 to section 25 provides that inadequacy of consideration does not void an agreement though it is evidence upon the question of free consent. Section 37 requires the parties to perform their respective promises, putting performance rather than fairness at the centre of the scheme. And section 73 measures damages by the loss which naturally arose in the usual course of things from the breach, not by what a court considers the transaction ought to have produced.

3. What does the premise assume away, and how did the law respond? Five things. Inequality of bargaining power, since the employee, the insured, the passenger, the borrower and the consumer do not negotiate. The standard form, since individualism describes two merchants haggling while most contracts are a printed document that one party wrote and the other signed. Information, because a party cannot be the best judge of their own interest in respect of facts they do not possess, which is why the Act itself carries sections 17 and 18 and why the modern consumer statutes carry duties of disclosure. Third parties, because two parties may strike a bargain that suits them both and harms somebody else, which is why section 23 carries a public policy limb. And that walking away is a real option, which for a person who must have electricity, employment, credit, transport or medical treatment it is not, a freedom that cannot be exercised being no freedom at all.

The law responded in four moves. The Act's own controls, present from 1872: section 16 on undue influence, sections 17 and 18 on fraud and misrepresentation, section 23 on unlawful object and public policy, and sections 26 to 30 voiding agreements in restraint of marriage, of trade and of legal proceedings and wagering agreements; the drafters did not accept the premise without qualification and their own sections say so. Judicial control, by construing exemption clauses strictly against the party who drafted them and by treating a term imposed where the weaker party had no real choice as unconscionable and opposed to public policy. Statutory intervention, through rent control, minimum wages, industrial relations, insurance regulation and consumer protection, each removing a term from the parties' hands. And the constitutional overlay, under which article 14 controls the terms a State party within article 12 may impose, which is what made the decision in Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly, (1986) 3 SCC 156 possible.