Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part X(B): Response to Nancy Kim

Comments on Nancy Kim’s Post
Melvin A. Eisenberg

Nancy has perfectly captured my view of contract law, and adds two penetrating questions. I’m grateful for these questions because they have led me think about problems that I had not addressed.

To begin with, Nancy points out that my guiding principle is that the rules of contract law – indeed, the rules of all common law subjects – should be based on propositions of policy, morality, and experience, and that when these propositions conflict they should each be afforded appropriate weight given the issue at hand. She then asks, how should a court determine those weights? I don’t have a definitive answer, but I will make two comments.

First, moral and policy principles, and different policy principles, usually point in the same direction, so problems of weighting don’t often arise.

Second, legal rules should not be based on morality, policy, and experience simpiciter, that is, without a qualifier. Rather, they should be based on social morality, by which I mean moral standards that claim to be rooted in aspirations for the community as a whole and can fairly be said to have substantial support in the community, and on social policies, by which I mean  policies that claim to characterize a state of affairs as good for the community as a whole and can fairly be said to have substantial support in the community. As a result, when social propositions conflict a court should try to determine what weight society puts on the relevant moral and policy propositions. So, for example, in our society the proposition that lying is immoral will rarely if ever be overcome by a proposition of policy.

Arizona Home
Image by DALL-E

Admittedly, not every weighting problem is that easy. In those cases a court must use its best judgment. For example, in Zambrano v. M & RC IILLC, 254 Ariz. 53 (2022), a seller of homes disclaimed the implied warranty of workmanship and habitability, and substituted in its place  a complex express warranty that was much less generous than the implied warranty. The Court had to determine which was more weighty: the policy of freedom of contract or the policy reasons for the implied warranty. The Court carefully reviewed the policy reasons for the implied warranty, and the injuries that would be caused to home buyers if that warranty could be disclaimed, and concluded on the basis of those reasons that the policy reasons for the implied warranty outweighed the reasons for the policy of freedom of contract

Next, Nancy asks how does dynamic law, which I champion, fit into the contract world we live in today, where adhesive terms hijack persons who have no intention of agreeing to those terms entering into a transaction where courts hold those terms to be binding. The answer is, they don’t fit, because dynamic contract law is sound and the current treatment of form contracts is unsound, as Nancy convincingly demonstrates.

To begin with, it is well established, as Nancy points out, that consumers don’t read form contracts. (Neither do employees who sign contracts on behalf of their employer, although that’s much less of a problem due to UCC Section 2-207 and the knockout rule).  Form contract terms fall into two categories: individualized terms, such as price, and standardized terms, such as limitations on liability. Individualized terms are known to form-takers but it is well-established that standardized terms are not. That being so, standardized terms should either be unenforceable or unenforceable if unfair.

The Sky, Not Falling, Supported by Contracts
Image by DALL-E

As to the former alternative, under which standardized term would be unenforceable, some judges seem to think that the sky would fall if that was the law. However, UCC Section 2-207 and the knockout rule already go very far in that direction for business-to-business transactions, and the sky is still up there. If a contract is formed under Section 2-207(1), under the knockout rule conflicting terms will drop out. Since most standardized terms in a buyer’s and a seller’s forms will conflict, most or all standardized term will drop out. Alternatively, if a contract is formed under Section 2-207(3), every standardized term in both forms drop out even if they do not conflict, except where terms in the two forms match, which will seldom occur.

As to the latter alternative, under which standardized terms should be unenforceable if unfair, Restatement Second of Contracts Section 211(3) already takes that position:

   [Section] 211. Standardized Agreements.

(1)  Except as provided in Subsection (3), where a party to an agreement signs or otherwise manifests assents to a writing and has reason to believe that like writings are regularly used to embody terms of agreements of the same type, he adopts the writing as an integrated agreement with respect to the terms included in the writing. . . .

(3) Where the other party has reason to believe that the party manifesting such assent would not do so if he knew the writing contained a particular term, the term is not part of the agreement.

In other words, under Section 211(3) a term in a form contract is not enforceable against a form-taker if the form-giver had reason to believe the form-taker would not have agreed to the term if she knew the term was in the form. Since a form-taker would seldom or never agree to an unfair term, Section 211(3), which has been quoted or cited in close to twenty cases, effectively renders unfair form terms unenforceable.

Previous posts in the Symposium:

Virtual Symposium: Mel Eisenberg and Contracts Law Scholarship

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part I: Shawn Bayern

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part II: Douglas Baird

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part III: Ethan Leib

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part IV: Nancy Kim

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part V: Introducing the Second Week

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part VI: Mark Gergen

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part VII: Jennifer Martin

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part VIII: Harris Hartz

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part IX: Hila Keren

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part X(A): Response to Ethan Leib

Subsequent posts in the series:

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part X(C): Response to Sid DeLong