Limits to the autonomy of will in contracts

The principle of autonomy of will is basic in contract law. Through it, the parties can freely regulate their interests and create the legal relationships that contracting parties deem appropriate.

However, it cannot be said that a contract is valid simply because it represents the will of the parties. For the will to be effective between the contracting parties, it must also be recognized in the legal system. It should therefore be noted that prohibitions prevent the will of the parties from having full effect. And that, in general, it will not be possible to agree on anything that is contrary to the Law, morality and public order.

We will now examine the limits that could prevent the validity of clauses or agreements contained in a contract. We will also give some examples, together with the consequences of conflicting agreements.

Limits to the principle of Contractual Autonomy of Will

As we have already mentioned, this principle is subject to a number of restrictions within contract law.

As a rule, freedom in contracts allows the contracting parties to determine the terms of the contract themselves. But they cannot do so if those clauses infringe the mandatory legal rules of the contractual regime, morality and public order.

Article 1.255 of the CC provides:

The contracting parties may establish the agreements, clauses and conditions that they consider appropriate, provided that they are not contrary to the law, morality or public order.

Si te ha interesado este artículo no dudes en leer:

Legal Due Diligence

Legal Due Diligence is the analysis of the business through the revision of documents and interviews of the employees. Normally, it is done when one wants to purchase a business or a business unit.

1. As for the Law:

Mandatory rules impose an act that prevents them from being derogated by a pact stipulated by the contracting parties.

These prohibitive or mandatory laws reduce the freedom to contract, and can be applied when:

√ Some of the contents of the contract, clause or condition do not fit into the nature of the contract.

√ When the contract has a predetermined and imposed content for another party. Or there is an unjustified imbalance in the respective obligations of the contracting parties.

Ultimately, they prevent a party from not doing what it is compelled to do or from doing what the law prohibits them from doing.

2. As for morale:

Morality, understood as a set of ethical convictions and values, prevents entering  into immoral contracts. It is therefore a question of protecting a series of behaviors that must be complied with and respected by society. And which, moreover, cannot be conventionally derogated from. The immorality of a contract would lead to its invalidity. Article 1.271 of the Civil Code also states that contracts whose purpose is to provide services contrary to good faith are prohibited.

3. As far as public order is concerned:

Public order is understood as the general organization of society and the principles of coexistence by which it is governed. These laws of public order mark a limit to the autonomy of the will. If they are altered by the will of the contracting parties, this would also lead to the ineffectiveness of the contract.

Examples of limits to the principle of Autonomy of Will

Supreme Court (Civil Section) Judgement No. 97/2002 of 11 February:

In this ruling, the Court analyzes whether the principle of autonomy has been violated in a case of express and voluntary submission to the jurisdiction of Munich. The appellant in cassation defends the principle of autonomy by making the following statements:

“In the context of the above plea, it cannot be forgotten that both parties, the applicant and the defendant, are German citizens, that the documents are drawn up in German, that one of the parties is domiciled in Munich, the applicant, and that, in short, the express submission was not accidental but expressly and voluntarily agreed on those grounds and that for that reason Mrs Erika B. agreed with the plaintiff, on the condition that the interpretation of the contract and its performance would be subject to the jurisdiction of Munich, this condition being perfectly legal and admissible in Spanish and German law, it would necessarily be the ordinary judge corresponding to that jurisdiction in Munich who would have had to hear the case, so that by bringing it before a different ordinary judge the plaintiff failed to fulfil its obligations and the Court infringed the principle of freedom of will in matters of contracts laid down in Article 1255 of the Civil Code, reasons which lead us to request that the judgment under appeal be set aside”. (…)”

The SC does not accept the appellant’s motive, on the understanding that an agreement in a contract cannot prevail when it conflicts with a legal precept. It points out as follows:

” The reasoning cannot be accepted. For the time being, the Organic Law of the Judiciary states in its article 22.1 the competence of the Spanish Courts and Tribunals, “with exclusive character” in matters of rights in rem and property leases in Spain. This precept cannot be interpreted using article 121 of the Urban Leasing Law, as this regulation does not only refer to urban property, nor to the legally protected leasing of housing and rental premises, and has nothing to do with this regulation, and is therefore also applicable to rural and urban leases under special laws and those regulated by the Civil Code itself. Therefore, it is not understood that a contract agreement is intended to prevail when it arbitrarily conflicts with such a national precept which, moreover, is inspired by the Brussels Convention and which sets out the determining criteria for jurisdiction in civil matters, considering the points of connection between the procedural claim and, in this case, the territory.

Nor is it understood in what way article 1255 of the Civil Code has been violated. Both this precept, as well as the preceding and concordant ones, mark the principles of autonomy of the will and contractual freedom of the parties to bind themselves, with no other limitations than the imperative rules, as it happens in this case, the laws, as this Organic Law of the Judiciary, the morality or the public order. These limits, which today are surpassed and transcended by social principles, as is the case with our Basic Text (arts. 1, 10, 33, 51, etc.), or by ethical principles, in art. 7 of the Civil Code.

From the perspective of public order, this is already integrated by principles of national law that are considered intangible within the territory of state sovereignty. In short, as this Chamber’s decision of 19 September 1997 pointed out, article 1255 of the Civil Code establishes the principle of freedom of contract, but subject to the limits of the law, morality or public order. (…)”.

Supreme Court (Judicial Administrative Section 3) Judgment of 20 December 2010:

In this case is examined the validity of a clause containing anti-competitive restrictions not covered by a series of Regulations. And if, in addition, the contract, as agreed, falls within one type of business or another:

“As in the former case, allusions to the principle of autonomy of will are not enough to solve the problem posed. It is a question of deciding whether a block exemption applies to certain commercial agreements, a decision which in this case must largely revolve around the assumption of risk by the final distributor of the liquefied petroleum gases. The parties to a contract can undoubtedly operate within the broad limits of Article 1255 of the Civil Code: the question is precisely whether the contract thus agreed upon, after examination of all its specifications, falls within one type of business or another. Nor can certain nominal references (e.g. those relating to action “on behalf of”) be considered decisive in this respect if the contractual features as a whole detract from the conclusions that could be drawn from that mere nominal reference. (…)”

“From this premise will also derive the rightness in the conclusion. For if the nature of the contract, despite the name of agency, is rather that of resale by an independent trader, who assumes his own risks by imposition of the seller and who does not act as an agent or mere instrument of the principal, the contract is in reality a vertical exclusive distribution agreement which “Repsol Butano, S.A.” enters into with the resellers. And since it contains anti-competitive conditions which exclude the exemption provided for in Regulation 1983/1983 (such as non-competition clauses for two years and the reservation by the operator of the right to lease the distributor’s premises for the same period after the termination of the contractual relations) the agreement itself cannot benefit from the said exemption. (…)”

Seville Court of Appeal (Section 5) Judgement No. 377/2011 of 16 September

Finally, we will see how this case considers valid a contractual clause by which a twenty-four-month non-competition agreement was agreed upon. And applicable from the moment the contract between the parties ends:

“It is undeniable that the principles of contractual freedom and autonomy of will enshrined in Article 1.255 of the Civil Code are valid in the contractual field, with no other limits than those derived from mandatory rules, morality and public order. On this basis, the existence of a series of ethical and social principles of a mandatory nature that place limits, based on the general interest, on private autonomy is affirmed. This precept, as indicated in the ruling of 30 April 2002: “authorizes contractors to “establish the agreements, clauses and conditions that they deem appropriate, provided that they are not contrary to the law, morals or public order”, enshrines, as the ruling of this Chamber of 24 September 1987 has stated, the principle of freedom of will and authorizes the modification of the outline of the standard contract provided for by the legislator to the point of deforming it by combining or adding special agreements, thus giving life to a different contract”.

In any contractual relationship, it is considered essential that the parties should be in a position of equality, so that terms should be negotiated and not imposed by one of them. This does not preclude the admission in our system of the contract of adhesion, understood as one in which the clauses are drafted by one of the parties and imposed on the other, without the latter having the possibility of negotiating them, but simply accepting them or not. In this type of contract, the freedom to contract is maintained, that is to say, to conclude it or not, but not contractual freedom, in the sense that both parties have negotiated and have been free to establish the clauses.

On that basis, at no time did the defendant claim that such a clause was imposed on it, so that in view of the difficult economic situation in which it found itself, or for any other reason, it was forced to accept it, without the slightest possibility of evading it. During the term of the contract, two years and two months, given that the plaintiff proceeded to terminate it on March 25, 2009, the defendant did not express, in any way, its disagreement with said agreement, nor has it even alleged that its consent was vitiated. Under all these circumstances, it is not possible to accept this interested nullity, since we are dealing with a pact that cannot be considered contrary to the law, morality or public order, it falls within the sphere of freedom of persons, and to a great extent logical, since it is the plaintiff who has experience in the clinical furniture sector, and tries to avoid the damage that would be caused by the immediate entry of a new competitor with the singularity that it knows the commercial methodology of the plaintiff, and in any case, given the silent behavior of the defendant we must understand that it has always accepted it, understanding it as logical and the result of the normal negotiation that takes place between the contracting parties.

Consequently, this reason must be dropped. (…)”

Conclusions

• A contract is not necessarily valid just because represents the will of the parties.
• The principle of autonomy of will has a series of restrictions that could invalidate the contract, wholly or in part.
• The three limitations contained in the law are referred to agreements that are contrary to the law, morality and public order
• Neither can the validity of abusive, imposed or unjust agreements be protected in the autonomy of will.
• However, whoever invokes an abusive or imposed pact will have to prove that he was forced to accept it.

If this article has been of interest, we also suggest you to read the following article published on our website:

Jurisprudence on Exclusivity Pacts, non-concurrence and permanence in Spain. Limits and requirements