Government intervention in unfair terms based on economic analysis of contracts

Document Type : Scientific research

Author

• ghasem nabizadeh kebria

Instructor, Faculty of Humanities, Islamic Azad University, Sari Branch

https://doi.org/10.22067/lowecon.2021.48838.0

Abstract

 
Extended Abstract
For a long time, due to the specialization of affairs and the division of labor in a society, people have to communicate with each other to meet their needs. In view of these widespread and inevitable social changes, the principle of contractual freedom, which is based on assumptions such as the independence of individuals in relation to each other and their equality in contracts, has faced serious challenges. It is the duty of governments to implement this principle, while applying minimal intervention, to provide the ground for the flourishing of creativity and talent of individuals, in order to improve the welfare of individuals and, consequently, society. It is now clear that the assumption of equality and independence of persons in referring and concluding contracts with each other is closer to illusion than to reality (Kauffman and Macdonald, 2004: 4 & Aghion, 1990: 381-385).
These changes have caused the principle of contractual freedom to lose its former validity and sanctity in today's law and face serious allocations and restrictions. The main purpose of imposing these restrictions is to restore balance to contractual relations and to establish a just social order.
One of the examples of these restrictions is the establishment of "unfair conditions". In this establishment, if an obligation is deemed to be unfair in accordance with the declared legal rules, its imposed effect on the other party (generally weaker) will be removed. In fact, although under the principle of contractual freedom the obligor is bound by such a contract, in practice and according to the legislature, the obligation arising from "unfair terms" will be removed from the condition against it.
 After the industrial revolution in industrialized countries and before of early years of the present century in Iran and, major changes have taken place in the social status and economic power of the parties to consumer contracts. The diversity of contracts, the complexity of markets, the specialization of knowledge of production, supply and use of goods seem to indicate the lack of complete information and reasonable choice by the weak contracting party (Mainly the consumer). Afterward the weak parties of contracts under traditional contract law have no longer been able to balance their interests and obligations under the contract and allocate the resources efficiently. (Hayek, 2003: 212) In other word, within the framework of traditional contract law and based on the principle of autonomy of contracts, most transactions or contractual terms led to the loss of the weak party and inefficient allocation of resources systematically. (Tajarloo, 2008: 206). These shortcomings in the whole world and in a few cases in Iran, led governments to intervene in these contracts in the form of new legislation about the unfair terms with the new regulations and thus seek to eliminate them. These shortcomings are in fact the disability of the traditional system of contract law to achieve the purposes of political and legal systems, which are stems from the fundamental values ​​and intellectual traditions that govern these societies. Because of the various shortcomings in this area, governments are involved in contracts containing unfair terms based on a variety of principles, including economic efficiency (efficient resource allocation) (Aghion, 1990:382). Therefore, this article tries to study the legislator's intention to classify some obligations as "unfair terms" based on the concept of economic efficiency of contracts.
However, principles such as the principle of the rule of wills and the correctness of transactions are still fundamental principles in various legal systems of the world, but today it does not have the scope of its former territory. What has been achieved as a result of the specialization of science and services, widespread social change, and economic and transactional inequalities is the guidance of legal systems toward the delimitation of the territory and the various allocations of the above principles. Unfair terms, which are unfamiliar with the principle of freedom of contract, are one of the most important exceptions to this principle.
Identifying and guaranteeing the implementation of such obligations in law is the product of government intervention and public rules in the private contractual relations of individuals. Traditional (formalist) law, which deals only with the external aspect of contracts, cannot eliminate the defect in the market that leads to irrational or unjust choices. Therefore, the legislator's action in enacting laws should be such as to distribute the resources of the parties to the contract in accordance with their accepted obligations. This instrumentalist approach to contract law can eliminate their unjust or irrational obligations. Therefore, it seems that one of the justifying principles of government interventions in the private transaction relations of individuals, in addition to social necessities and ensuring maximum justice, is to reach effective agreements from the perspective of economic analysis of contracts.
 Studying the limited cases of discussing unfair terms in domestic law, it is understood that if a contract leads to the maximum allocation of its resources to each of the parties at the lowest cost, such an effective agreement will not be subject to legislative intervention. However, it seems that governments and public forces in limiting the scope of unfair terms and, consequently, restricting the principles of validity and freedom of contracts should limit their involvement to the necessary (contract efficiency) to pave the way for the emergence of talent and capacity. Be available in the open market.
Introduction
Given the rule of free will, traditional contract law cannot always lead to efficient contracts. In unjust commitments, non-interference by the government systematically promotes the position of one over the imposition of excessive aggression on the other. The main question is whether it is necessary to limit this principle based on the economic analysis of contracts? Can the government make a mandatory regulation to adjust the obligations of the parties? Are there examples of economic adjustments of obligations in current Iranian law?
Theoretical frame work
On the one hand, this study points to the need for government intervention in the contract and the restriction of the principle of free will in unfair terms, On the other hand, legal examples explain the interference based on the economic efficiency of the government in contracts. Finally, the assumption of the necessity of government intervention has been expressed based on the economic analysis of the obligations in the contracts.
Methodology
This study tries to explain the necessity of efficiency-based intervention by examining the drawbacks of government interference in private contracts and by examining the existing legal examples, to answer the main questions of this research based on a descriptive-analytical method.
Results & Discussion
The variety of contracts, the complexity of markets, the specialization of knowledge of production, supply and use of goods seem to indicate the lack of complete information and reasonable choice by the weak contractors (usually the consumer). Weak parties to transactions governed by traditional contract law are no longer able to balance their interests and obligations in the contract and efficiently allocate resources. Within the framework of traditional transaction law and based on the principle of freedom of contract, most transactions or contractual conditions systematically lead to the loss of the weak party and inefficient allocation of resources. These shortcomings worldwide and in limited cases in Iran, led governments to intervene in the agreements in the form of identifying unfair terms with the new regulations, and in this way seek to eliminate those shortcomings. Government interference in contracts with unfair terms is based on a number of factors, including economic efficiency (efficient resource allocation).
Conclusions & Suggestions
Identifying and guaranteeing the implementation of unfair obligations in law is the result of government intervention and public rules in the private contractual relations of individuals. Traditional (formalist) law, which deals only with the external aspect of contracts, cannot eliminate a defect in the market that leads to irrational or unfair choices. Therefore, the legislator's action in enacting laws should be such as to distribute the resources of the parties to the contract in accordance with their accepted obligations.  This instrumentalist approach to contract law can eliminate their unjust or irrational obligations. Therefore, it seems that one of the justifying principles of government interventions in the private transaction relations of individuals, in addition to social necessities and ensuring maximum justice, is to reach effective agreements from the perspective of economic analysis of contracts. Studying the limited cases of discussing unfair terms in domestic law, it is understood that if a contract leads to the maximum allocation of its resources to each of the parties at the lowest cost, such an effective agreement will not be subject to legislative intervention. However, it seems that governments and public forces in limiting the scope of unfair terms and, consequently, restricting the principles of validity and freedom of contracts should limit their involvement to the extent necessary (contract efficiency) to pave the way for the emergence of talent and capacity. Be available in the open market.
 

Keywords

• Key words: Unfair Terms
• Economic Efficiency
• Economic Behavior
• Unfair conditions
• Government interference

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