Wednesday, September 4, 2013
This is the seventh in a series of posts in our online symposium on the Contracts Scholarship of Stewart Macaulay. More about the online symposium can be found here. More information about this week's guest bloggers can be found here.
Peter Linzer is a Professor of Law at the University of Houston Law Center.
Contracts of Adhesion: An Oxymoron?
Contracts of adhesion are a big topic this year, what with Peggy Radin’s Boilerplate, Oren Bar-Gill’s Seduction By Contract and the ALI’s new Restatement Third of Consumer Contracts. I’ve been focusing on the notion of adhesion, so my view of the fine book that Jean Braucher, Bill Whitford and the late John Kidwell have put together in honor of Stewart Macaulay (pictured below left) is tilted in that direction. Macaulay’s 1963 American Sociologicaly Review article referred to non-contractual relations in business, and many of the essays in the Festschrift (Stewart probably finds the term pretentious, but it surely is a celebration of him and his work) are about business contracts. But only three years later, Macaulay wrote Private Legislation and the Duty to Read – Business Run by IBM Machine, the Law of Contract and Credit Cards, 19 Vand. L. Rev. 1051 (1966), which is excerpted in the book.
The reference to IBM machines must sound quaint to younger readers, but like early Kurt Vonnegut stories (“Epicac”) and novels (Player Piano) that saw the problems of technology and people in an era of vacuum tubes, it still rings true. Most of the Vanderbilt article deals with businesses, but in a footnote Macaualay cited Lawrence Friedman’s discussion of how discrete areas such as labor law and occupational licensing have been spun off from general contract jurisprudence, and made reference to his own discussion of automobile franchising. (It’s note 5 on page 22 in the book, and note 18 in the Vanderbilt article.) In a fairly short discussion of consumers, Macaulay considered both case-by-case policing and legislationve regulation of standard terms, as in fire insurance contracts, and didn’t go much beyond that. But in an article not included in the book, but with the happy short title of Bambi Meets Godzilla, 26 Houston L. Rev. 575 (1989), he looked at consumer and deceptive trade practices laws and showed how they should be an integral part of the Contracts course, even though they had frequently been distorted into windfalls for well-informed consumers (often lawyers), rather than as weapons of defense for the little guy.
Others in the book have built on Macaulay (and Ian Macneil) to suggest that consumer transactions should be treated as a separate form of contract law. Bob Scott, whom Bob Gordon seems to describe, with respect, as a neo-formalist relationalist, has put forth a strong argument in that a hands-off policy makes no sense with consumer transactions, even if it does when sophisticated businesses are dealing with each other, while Ethan Leib has argued strongly that relationalists should “fragment consumer form contracts into its own sphere for treatment with the reasonable expectations approach,” but that this will require even more fragmented empirical research “to be useful to courts and regulators.” Ethan Leib, What is the Relational Theory of Consumer Form Contract? Chapter 9, at 284). Chuck Knapp, who has written frequently on adhesion problems, shows in his Is There a ‘Duty to Read’? (Chapter 11), how courts have or should have distinguished consumer transactions, and argues that what he calls a “presumption of knowing assent” should not preclude scrutiny of contracts of adhesion.
I think, however, that the real issue is whether we should treat adhesion contracts as part of contract law at all. I started teaching forty years ago, and from the beginning I had my doubts about the lines among the basic topics of private law: tort, contract and property, or even about how private private law was, and Peggy’s book in particular has led me to doubt that we should call any legal document a contract when it involves no real agreement, no negotiation or bargaining, little understanding of terms by the non-dominant party and no opportunity to change terms, except by walking away. In a previous blog, about Boilerplate, I pointed to the removal of products liability from the law of negligence. There, I pointed out that before the great 1914 Cardozo opinion in MacPherson v. Buick Motor Co., liability for a defective product was based on contract, while the expansion of liability away from the proof of negligence came from the use of implied warranties, which are sort of contractual, until Roger Traynor spoke of strict liability in a res ipsa loquitur case and, half a generation later, the Restatement of Torts Second § 402A took us off to the races.
This is hardly the place to review the immense body of writing about adhesion contracts, but I would like to point out that much of the apology for the dominant party imposing terms seems really to treat the issue as a matter of property law – “It’s my widget (or software) and I can set any terms for your license [a property term] to use it.” In effect, a no trespassing sign. That’s all right, I suppose, but it isn’t contract, and it should be judged by whether an owner of a thing owes a public duty to treat those who wish to use it with some degree of fairness, ultimately a matter of public law, like antitrust.
None of this answers the question of how to deal with what Knapp calls “individual contracts,” not just consumer deals, but franchise, employment and at least some professional service contracts (lawyers, brokers, etc.). We know, as both Stewart Macaulay and Jean Braucher have shown us, that individualized review through litigation, even with a presumption in favor of the little guy, is economically unfeasible in most circumstance, especially with the Supreme Court’s rigid imposition of the Federal Arbitration Act to favor pre-dispute arbitration clauses in contracts of adhesion. Bob Scott points to the European Union’s regulation of consumer contracts through a Council Directive imposing strong rules favoring the consumer, but the EU member states seem more amenable to a regulatory regime than we have been in recent years, though our former colleague and friend, Senator Elizabeth Warren’s Consumer Financial Protection Bureau has begun to make headway.
I think, and have written before, that legislation or administrative regulation forbidding specific terms in various individual adhesion transactions (examples could include choice of a distant forum, mandatory arbitration, limits on consequential damages, waiver of jury trials) is probably the best way. It is an appropriate area for state legislature, and more important, Congressional intervention, particularly because this issue has almost nothing to do with freedom of contract.
In fact, it has almost nothing to do with contract.
[Posted, on Peter Linzer's behalf, by JT]