Government intervention in unfair terms based on economic analysis of contracts

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.

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.

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.