The Need to Reshape Consumer Contract Law

consumer contract law

Freedom of contract generates wealth and reflects individual autonomy. Back in 1861, Henry Sumner Maine attributed the development of our liberal, democratic society to our legal system’s transformation from a system based on people’s status (who they were) to one based on contract (what they chose). But modern contract law increasingly bases consumers’ rights not on choice of terms, but on our choice of status. After all, consumers choose to do business with a company, but they do not choose the rules governing the relationship. Those rules are crafted and imposed by the company through their online boilerplate provisions. These provisions increasingly contain waivers of consumers’ default legal rights, but if consumers want to do business with companies (especially in the context of online transactions), consumers have no choice but to click “I agree.”

Choosing a relationship is not the same as choosing terms. Conflating the two has led to consumer disempowerment. I reject the conclusion that contract law requires consumers to be held to all company-authored terms when engaging in transactions with companies. Consumer contract law could – and should – easily find that there are embedded substantive limits on what terms a consumer’s choice of transaction can be deemed to include. Consumers choose a given product or service, its disclosed price, and parameters essential to the transaction’s infrastructure. But there is no justification for deemed consumer assent to company-imposed terms that purport to take away consumer rights. When modern courts conflate a consumer’s election to transact with a company to consumer choice to be bound to all the company’s terms, they have perverted the common law of contractual obligation. Modern consumer contracts are not the product of mutual assent. They are whatever the company wants them to be.

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I conducted a study of 100 online terms and conditions and found that nearly all of them purport to waive consumers’ default dispute resolution options, exculpate companies from tort and contract liability, and cap company damages. Courts – and the new Restatement of Consumer Contract Law – assert that the only way to avoid transactional chaos is to treat the entirety of online boilerplate provisions as presumptively the terms of the parties’ contract. When we click “I accept” online, or even when we simply use a company’s webpage containing a hyperlink to its terms, courts (and the new Restatement) characterize that action as objectively manifesting an intent to delegate to the company counterparty the right to create and impose the terms governing our transactional relationship. Holding consumers bound to whatever terms the company desires is not a legal approach rooted in choice, however. Instead, consumer legal rights and obligations derive from their relationship status with the company: borrower, buyer, subscriber, employee.

Although many decry the fact that consumers do not generally read online terms, the worrisome part of modern consumer contract law cannot be resolved by ensuring opportunity to read boilerplate (or even the rarely successful doctrine of unconscionability). Because consumers have no power to negotiate or vary the imposed terms – and since nearly all boilerplate provisions allow the company to unilaterally change the terms in the future – reading them is, frankly, a waste of time. But concluding that company preferences must therefore always govern the parties’ relationship is highly problematic. This is especially true in the context of our modern world. Digital terms and conditions can be of limitless length and complexity. And the shift from ownership to access for goods and services means that contracts increasingly control all aspects of our life – consider all our many subscriptions (needed to listen to music, watch movies, use electric scooters) and the software license-wrapped goods we use each day. Unfettered company control over “contract terms” is becoming more and more impactful.

What is the solution? Although many call for increased regulation or statutory limitations, I believe that a solution can be found in the common law itself. First, judges should reconsider the assumption that choice of a relationship equals delegation of contractual freedom to a company counterparty. Instead, courts should distinguish between consumer assent to a transaction and consumer acquiescence to unilaterally imposed terms. Deemed mutual assent should only stretch to cover those parts of company terms that are necessary to construct the infrastructure for the transaction. A correct re-interpretation of deemed assent should exclude sneak-in waivers in boilerplate. After all, there is zero evidence that a given counterparty – or consumers generally – prefer to waive their right to class action litigation, statutorily implied warranties, or contract damages.

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The solution I propose has been called “radical,” but it is justifiable. Instead of relying on judicial – or arbitral – oversight of company contract overreach, it redefines the contract’s content to reflect the reality of consumer assent. The foundational justifications for contract law support this approach. Agreeing to do business with a company does not reasonably equate to assent to unilateral, non-negotiable (and likely wordy, incomprehensible, and hidden) terms. And a consumer’s choice to a transaction doesn’t have to be inextricably bundled with whatever the company says the rules of engagement are.

Consumers who do business with a company likely agree to the terms that pertain specifically to that transaction, but they likely do not agree to waive a plethora of other default legal rights. Defining the contract to include only the terms that construct the transactional infrastructure – and not those that exist simply to delete or redefine consumer default rights – better aligns the definition of “contract” with the requirement of mutual assent. This approach also will avoid the necessity of (over)relying on defenses to enforceability (unconscionability, public policy, regulation, and the like) as the only way exclude company-imposed boilerplate terms. Instead, sneak-in waivers of consumer default rights would not be part of the parties’ contract to begin with.

Separating out the question of whether parties have agreed to a contractual relationship from the question of what terms govern that relationship seems novel in the context of consumer contracts. But this approach has been used in commercial contract law since the 1950s. Section 2-207 of the Uniform Commercial Code (adopted by 49 of the 50 states) decouples the question of contract content from the question of contract formation in order to protect both parties’ ability to shape the contract’s content. Courts could follow this approach in the context of consumer boilerplate contracting as well.

Concluding that boilerplate waivers are not part of consumer contract terms would not necessarily require legislation. This conclusion derives from the legal definition of waiver. A legal waiver is an intentional relinquishment of a known right. To be effective, a contract waiver must therefore be voluntary, known, and made in exchange for some consideration. Boilerplate waivers lack all three elements. Limiting the coverage of consumers’ “blanket assent” to the transactional infrastructure – along with voluntary, known exchanges of value – restores consumer contract law to its contract foundations. Because contract law increasingly controls all aspects of our lives, such a reconsideration and reform of the law is essential.

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Comments 1

  1. Karen Hanneman says:

    Excellent needed article

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