Restricting the Freedom of Contract: A Fundamental Prohibition

By Weber, David P. | Yale Human Rights and Development Law Journal, Annual 2013 | Go to article overview

Restricting the Freedom of Contract: A Fundamental Prohibition


Weber, David P., Yale Human Rights and Development Law Journal


This article argues that the general right to contract, that is to say the ability of one to obligate himself in exchange for another's obligation in return, is a fundamental (or basic) though not all-encompassing right and one that is subject to additional legal protections especially when limitations are sought to be imposed discriminatorily or based on status rather than capacity or subject matter of the contract. While post-Lochner decisions have given states considerable leeway to regulate the scope of freedom of contract, restrictions based on status, especially the status of unauthorized immigrants, are invidious and go beyond the ambit of the type of state regulation previously permitted. This article concludes that a prohibition on the right to contract based solely on unauthorized immigration status in the United States likely violates the Civil Rights Act and the U.S. Constitution on preemption, due process and equal protection grounds, and, to the extent executed contracts are involved, on Contract Clause grounds as well. The article analyzes other circumstances in which states and the federal government have previously restricted the right to contract based on status, and finds in nearly every case that the restriction of the right to contract affected members of a suspect class based on immutable characteristics such as race, national origin, alienage, gender, or servitude. While the Supreme Court has previously concluded immigration status is not a suspect class, this article argues that states' illicit use of immigration status as a proxy for race, national origin or alienage suffices to meet the Arlington Heights test for disparate impact and therefore qualities for strict scrutiny.

[T]he movement of the progressive societies has hitherto been a movement from Status to Contract. (1)

--Sir Henry Maine

The first principle of a civilized state is that power is legitimate only when it is under contract. (2)

--Walter Lippmann

[F]reedom of contract is a qualified, and not an absolute, right. (3)

--Chief Justice Charles Hughes

I. INTRODUCTION

The right to contract is one of those fundamental rights in our society that is frequently lauded and rightly receives primary credit for the establishment of a functional, market-based economy in which predictability is prized. (4) This right is so ingrained that whenever we do hear about infringement of the right to contract, it is usually historical, such as limitations on women's right to contract prior to the nineteenth and twentieth centuries (5) or the rights of slaves or indentured servants preceding the twentieth century. (6) In addition, the supremacy of contract in our society has evolved from solely a mercantile instrument to one that encompasses transactions that are either not commercial or only tangentially so. Common examples include child custody agreements which are essentially court-affirmed contracts, surrogacy agreements, cohabitation agreements (prenuptials without the nuptials), divorce settlements, etc. (7) Given the prevalence of contract in modern society, it is difficult to imagine how anyone could live without that right. (8)

This article focuses on the larger question of the role states should play in determining the right of persons to contract and whether federal limitations should operate to curtail state action in this arena. While in some contexts states have successfully limited the right to contract based on status, (9) or capacity, (10) those limitations are an exception to the general rule of the freedom of contract. This is especially true in cases of status, whereby a state could declare a contract invalid because of who was entering into the contract, rather than for what purpose the contract was executed.

Alabama's Hammon-Beason Alabama Taxpayer and Citizen Protection Act, HB 56, provides that a contract is void based on the immigration status of one of the parties. …

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