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Valparaiso Univ. Law School

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Tuesday, June 10, 2014

The (Im)morality of Disclosure and Contract Design

I've been thinking a lot about contract design, disclosure and consent recently, and had a chance to read Tess Wilkinson-Ryan, A Psychological Account of Consent to Fine Print, 99 IOWA L. REV. 1745 (2014) which (from the abstract):

 "aims to unpack the beliefs, preferences, assumptions and biases that constitute our assessments of assent to boilerplate.  Research suggests that misgivings about procedural defects in consumer contracting weigh heavily on judgments of contract formation, but play almost no role in judgments of blame for transactional harms.  Using experimental methods from the psychology of judgment and decision-making, I test the psychological explanations for this disjunction, including motivated reasoning and reliance on availability heuristics." 

Wilkinson-Ryan concludes that, while disclosures may not have noticeable effects on the assent process (i.e. whether consumers read or understand terms), they have "enormous effects on how we understand transactional harms."  In other words, we are more likely to understand that the consumer has consented and that the consumer is to blame for having consented if the particular disputed issue has been disclosed. 

Wilkinson-Ryan covers the same territory that Eric Zacks covered in a couple of earlier articles having to do with contracting behavior by firms and the effect of contract design on how consumers perceive their moral obligations.  In the first article, Contracting Blame, 15 Univ. of Penn. J. of Bus. L. 169 (2012) Zacks (I’m quoting from the abstract again):

 “explores the impact of the cognitive biases of judges and juries in the context of contract preparation and execution....This Article makes a novel link between behavioral literature and contract preparation and suggests that contract preparers may be able to manipulate adjudicators’ cognitive biases systematically. Exclusive of the economic bargain, contract provisions can provide attributional 'clues' about the contracting context that inform and reassure judicial interpreters that a particular contracting party is more blameworthy than another....In light of the significant implications of the existence and prospective use of such attributional clues for contract law theory and judgment, this Article proposes a broader contextual and adjudicative focus when contemplating contract law reforms.”

In the second, Shame, Regret and Contract Design, 97 Marquette L. Rev. (forthcoming), Zacks argues (again from the abstract):

“(c)ontracts can encourage individuals to feel shame, to blame themselves, to believe that contracts are sacred promises that should be specifically performed, to utilize faulty judgment heuristics when determining contract costs, and to rely on misperceived social norms with respect to challenging or breaching contracts. This may influence them not to breach or challenge an otherwise uneconomical, unconscionable, or illegal contract.” 

 
The takeaway from these three articles?  Firms are manipulating consumers through disclosure and contract design into performing contracts without real consent.  The question then is what to do about it.

Wilkinson-Ryan’s article raises interesting questions about whether disclosure requirements have unintended consequences.  I think her article provides additional support for Omri Ben Shahar and Carl Schneider's book, More Than You Wanted to Know:  The Failure of Mandated Disclosure (Princeton, 2014).*  But rather than concluding that disclosure is a lousy way to address the problem of consent (which it often is), I came to a slightly different conclusion based upon one of her studies. That study found that "making the firm's behavior more salient changed how subjects ranked the blameworthiness of the parties." Wilkinson-Ryan notes that, "(u)nless participants are prompted to think about the firm's drafting process as a set of choices, the drafter's role is not a salient factor in judgments of blame." In my book, Wrap Contracts, and elsewhere, I argue that courts should stop focusing on consumer's "duty to read" and focus instead on the company's "duty to draft reasonably."  In other words, courts should consider whether the drafting firm could have presented and drafted the contract terms in a better, more understandable fashion rather than on whether the adherent "should" have noticed the terms. This shifts the burden of form contracting - and Wilkinson-Ryan's studies suggest, the moral blame -- from the non-reading consumer to the bad-drafting, morally culpable, company.   Of course, requiring companies to draft reasonably (as distinguished from providing “reasonable notice”) doesn’t get us all the way there – but it may help shift the focus away from blaming the adherent-victim  to thinking about the immorality of the drafting firm.


*This blog plans to host a symposium on their book sometime in the fall so stay tuned.

**Boycott Amazon and buy this book from the publisher's website. 

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