D.   Liberty of Contract

It is clear in Scripture that man is not obligated to make vows or promises to God or to his fellow man. Indeed, the writer of Ecclesiastes advises his reader not to make vows lest he later regret its cost. The absolute nature of the obligation arising from the making of appears to be the basis for this advice. Eccl. 5:4-5.

Does it follow from this liberty not to vow or promise, a concomitant liberty that if one chooses to vow or promise, then he may set the terms of one's vow or promise without external limitations? From the Scriptures we learn that God set the terms of the vow of the Nazirites. Numbers 6. While one was not forced to vow the vow of a Nazirite, if he did vow the vow he was bound by the terms laid down by God. See Judges 16:17. On the other hand, not all vows to God were governed by Biblical terms. Indeed, Jephthah's vow to sacrifice the first one out of his house to meet him after victory over Israel's enemy was binding even though its fulfillment required the putting to death of Jephthah's daughter, a clear violation of God's law against murder. See Judges 11:30-36.

Note that these examples from Scripture relate to vows between God and man. What about vows or promises between man and man? Does God's law govern those? If so, what limits are placed on terms or purposes of man's promises to one another? At common law it was clear from the beginning that certain agreements were unenforceable when their purposes were illegal, for example, gambling contracts, contracts to pay a bribe, and prostitution or other extra marital sexual agreements. On the other hand, the common law guaranteed a person the right to enter into "all contracts which may be proper, necessary and essential to his carrying out to a successful conclusion" any lawful activity. This common law principle of liberty of contract was endorsed by the United States Supreme Court in the late 19th century and grafted by that Court onto the due process clause of the Fourteenth Amendment in Allgeyer v. Louisiana:

ALLGEYER V. LOUISIANA
165 U.S. 578, 41 L.Ed. 832 (1897)

In Error to the Supreme Court of the State of Louisiana. A Louisiana statute of 1894 made it unlawful for any person to do any act in the state to effect for himself or for another, insurance on property, then in the state, in any marine insurance company which had not complied with the laws of Louisiana with respect to the doing of insurance business there. The defendants who were engaged in the cotton export business in New Orleans were charged with a violation of the statute because they had made application to a New York insurance company which had no agent in Louisiana and did no business there, for insurance on cotton shipments originating in New Orleans and destined for foreign ports. The premiums to be paid under the contract of insurance and the loss or losses thereunder were payable in the city of New York. The Supreme Court of Louisiana found that the defendants had violated the statute and held them liable for payment of the statutory fine.

Mr. Justice Peckham, after stating the facts, delivered the opinion of the court.

There is no doubt of the power of the state to prohibit foreign insurance companies from doing business within its limits. The state can impose such conditions as it pleases upon the doing of any business by those companies within its borders, and unless the conditions be complied with the prohibition may be absolute. The cases upon this subject are cited in the opinion of the court in Hooper v. State of California, 155 U.S. 648. . . .

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We do not intend to throw any doubt upon or in the least to shake the authority of the Hooper case, but the facts of that case and the principle therein decided are totally different from the case before us. In this case the only act which it is claimed was a violation of the statute in question consisted in sending the letter through the mail notifying the company of the property to be covered by the policy already delivered. We have, then, a contract which it is conceded was made outside and beyond the limits of the jurisdiction of the state of Louisiana, being made and to be performed within the state of New York, where the premiums were to be paid, and losses, if any, adjusted. The letter of notification did not constitute a contract made or entered into within the state of Louisiana. It was but the performance of an act rendered necessary by the provisions of the contract already made between the parties outside of the state. It was a mere notification that the contract already in existence would attach to that particular property. In any event, the contract was made in New York, outside of the jurisdiction of Louisiana, even though the policy was not to attach to the particular property until the notification was sent.

It is natural that the state court should have remarked that there is in this "statute an apparent interference with the liberty of defendants in restricting their rights to place insurance on property of their own whenever and in what company they desired." Such interference is not only apparent, but it is real, and we do not think that it is justified for the purpose of upholding what the state says is its policy with regard to foreign insurance companies which had not complied with the laws of the state for doing business within its limits. In this case the company did no business within the state, and the contracts were not therein made.

The supreme court of Louisiana says that the act of writing within that state the letter of notification was an act therein done to effect an insurance on property then in the state, in a marine insurance company which had not complied with its laws, and such act was therefore prohibited by the statute. As so construed, we think the statute is a violation of the fourteenth amendment of the federal constitution, in that it deprives the defendants of their liberty without due process of law. The statute which forbids such act does not become due process of law, because it is inconsistent with the provisions of the constitution of the Union. The "liberty" mentioned in that amendment means, not only the right of the citizen to be free from the mere physical restraint of his person, as by incarceration, but the term is deemed to embrace the right of the citizen to be free in the enjoyment of all his faculties; to be free to use them in all lawful ways; to live and work where he will; to earn his livelihood by any lawful calling; to pursue any livelihood or avocation; and for that purpose to enter into all contracts which may be proper, necessary, and essential to his carrying out to a successful conclusion the purposes above mentioned.

It was said by Mr. Justice Bradley, in Butchers' Union Slaughterhouse Co. v. Crescent City Live-Stock Landing Co., 111 U.S. 746, at 762, in the course of his concurring opinion in that case, that

the right to follow any of the common occupations of life is an inalienable right. It was formulated as such under the phrase "pursuit of happiness" in the Declaration of Independence, which commenced with the fundamental proposition that "all men are created equal; that they are endowed by their Creator with certain inalienable rights; that among these are life, liberty, and the pursuit of happiness." This right is a large ingredient in the civil liberty of the citizen.

Again, on page 764, the learned justice said: "I hold that the liberty of pursuit--the right to follow any of the ordinary callings of life--is one of the privileges of a citizen of the United States."

And again, on page 765:

But if it does not abridge the privileges and immunities of a citizen of the United States to prohibit him from pursuing his chosen calling, and giving to others the exclusive right of pursuing it, it certainly does deprive him (to a certain extent) of his liberty; for it takes from him the freedom of adopting and following the pursuit which he prefers, which, as already intimated, is a material part of the liberty of the citizen.

It is true that these remarks were made in regard to questions of monopoly, but they well describe the rights which are covered by the word "liberty," as contained in the fourteenth amendment.

Again, in Powell v. Pennsylvania, 127 U.S. 678, 684, Mr. Justice Harlan, in stating the opinion of the court, said:

The main proposition advanced by the defendant is that his enjoyment upon terms of equality with all others in similar circumstances of the privilege of pursuing an ordinary calling or trade, and of acquiring, holding, and selling property, is an essential part of his rights of liberty and property, as guarantied by the fourteenth amendment. The court assents to this general proposition as embodying a sound principle of constitutional law.

It was there held, however, that the legislation under consideration in that case did not violate any of the constitutional rights of the plaintiff in error.

The foregoing extracts have been made for the purpose of showing what general definitions have been given in regard to the meaning of the word "liberty" as used in the amendment, but we do not intend to hold that in no such case can the state exercise its police power. When and how far such power may be legitimately exercised with regard to these subjects must be left for determination to each case as it arises.

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The Atlantic Mutual Insurance Company of New York has done no business of insurance within the state of Louisiana, and has not subjected itself to any provisions of the statute in question. It had the right to enter into a contract in New York with citizens of Louisiana for the purpose of insuring the property of its citizens, even if that property were in the state of Louisiana, and correlatively the citizens of Louisiana had the right without the state of entering into contract with an insurance company for the same purpose. Any act of the state legislature which should prevent the entering into such a contract, or the mailing within the state of Louisiana of such a notification as is mentioned in this case, is an improper and illegal interference with the conduct of the citizen, although residing in Louisiana, in his right to contract and to carry out the terms of a contract validly entered into outside and beyond the jurisdiction of the state.

In such a case as the facts here present, the policy of the state in forbidding insurance companies which had not complied with the laws of the state from doing business within its limits cannot be so carried out as to prevent the citizen from writing such a letter of notification as was written by the plaintiffs in error in the state of Louisiana, when it is written pursuant to a valid contract made outside the state, and with reference to a company which is not doing business within its limits.

For these reasons we think the statute in question (No. 66, Laws La. 1894) was a violation of the federal constitution, and afforded no justification for the judgment awarded by that court against the plaintiffs in error. That judgment must therefore be:

Reversed, and the case remanded to the Supreme Court of Louisiana for further proceedings not inconsistent with this opinion.

The broad implications of the liberty of contract of the Allgeyer case enjoyed a short life. By the 1940's the United States Supreme Court disavowed any constitutional preference for a free economic marketplace. Moreover, Congress and fifty state legislatures have placed more and more limitations not only on the right to contract hut upon the terms of contracts. For example almost every contract of employment of labor services is subject to maximum hour and minimum wage laws. In most states certain employment is conditioned upon the employee's joining a union,or, at least, that it cannot be conditioned upon the employee's not joining a union.

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QUESTIONS

1)   What is the fundamental issue underlying the liberty of contract? If it is a God-given right as Marshall contended, would you expect to find God-given limitations on that right? Are there limitations beyond those set by John Warwick Montgomery's Law and Gospel:

"One does not have to look far in the law of contracts before discovering that the field depends on biblical anthropology, i.e., that the scriptural picture of man underlies its operations. Specifically, both in the Bible and in the law of contracts man is conceived of as a moral being - as one whose personal and societal life depends on moral commitment - and yet as a self-centered creature who continually violates the standards he requires of others. For contracts to be entered into successfully the law always presumes, as Professor Daniel Fessler of University of California (Davis) Law Faculty has put it, 'good faith cooperation as an implied condition precedent.' 'Every contract or duty within this Act imposes an obligation of good faith in its performance of enforcement,' is the constant refrain of the Uniform Commercial Code. But while recognizing that human agreements would necessarily collapse into litigious chaos without the presumption of good faith, the law of contracts equally perceives that the contracting parties are fallen creatures who seek their own interests to the disadvantage of the other party.

Why is the right to payment under a personal services contract not assignable prior to the rendering of the contracted for services but assignable after performance? Simply because the prohibited assignment would vary the obligor's risk, due to the sad fact that sinners, when they no longer expect to be paid personally for their future work, tend to perform it in a sub-standard way. Similarly, in the case of third party beneficiary, contracts, whereas the required 'intent to benefit' is presumed when a creditor beneficiary is involved, the donee beneficiary must affirmatively establish that the promisee had such an intent. Why? Simply because the law of contracts, in line with the scriptural view of fallen man and universal experience, recognizes that sinners are inherently more likely to pay off legal debts than to make gifts. Sons of Adam understand legalistic self-interest far more readily than they understand grace.

2)   Does Montgomery's observation about sinful man justify minimum wage and maximum hour laws? Read Lev. 19:13; Deut. 24:14, 15; Jer. 22:13; James 5:4 and Matt. 20:1-16.