[1] W. David Slawson, Standard Form Contracts and Democratic Control of LawMaking Power, 84 Harv. L. Rev. 529 (1971), stating, "Standard form contracts probably account for more than ninety-nine percent of all the contracts now made." Slawson provided no support for this statement. However, the perception has never been challenged.
[2] In the consumer context, banks, insurance companies, automobile manufacturers, film developers and dry cleaners conduct business on uniform conditions with all customers. Standard form terms are printed on concert, airline and theater tickets. They appear on warranty cards packaged with goods and are found in end user license agreements involved with the transfer of software and Internet on-line services. In the commercial context, firms use standard forms in commercial transactions, such as maritime bills of lading, marine and air charter contracts, export/import contracts and distribution, franchise and value added retail agreements.
[3] Article 34 of the Rules of the International Chamber of Commerce, Court of Arbitration provides: "Neither the arbitrators, nor the Court and its members, nor the ICC and its employees, nor the ICC National Committees shall be liable to any person for any act or omission in connection with the arbitration." Article 42 of the Rules of the Arbitration Institute of the Stockholm Chamber of Commerce provides: "The SCC Institute is not liable to any party for any act or omission in connection with the arbitration unless such act or omission is shown to constitute wilful misconduct or gross negligence by the SCC Institute. An arbitrator is liable only if shown to have caused damage by wilful misconduct or gross negligence."
[4] The Internet Corporation for Assigned Names and Numbers (ICANN) uses standard form contracts to register domain names. It also requires submission of complaints based on bad faith registrations to its Uniform Domain Name Dispute Resolution Policy. See http://www.icann.org.
[5] In response to a question posed at the ALI-ABA "Intellectual Property Licensing in Today's E-conomy" seminar held May 30-31, 2002 in Boston, Herbert A. Stern, counsel for Ciba-Geigy stated that he did not know the approximate percentage of custom contracts as opposed to form contracts. However, the empirical data comprising contracts used between merchants, case law and electronic agents indicate that firms routinely use non-negotiable standard form contracts in transactions with other firms.
[6] Misperception is widespread. For example, the American Bar Association has stated, "The advent of the Internet has revolutionized the global marketplace. Products and services once offered only at the local store are now available to consumers at every corner of the planet." ABA, A Report on Global Jurisdiction Issues Created by Information Technology Networks (2000). The statement is naïve and factually wrong. Otto Prausnitz, The Standardization of Commercial Contracts in English and Continental Law (1937)(demonstrating the ancient roots of standard form contracts providing support that other innovations such as the railroads, steamships and telegraph revolutionized the global marketplace with effects exceeding that of the Internet.
[7] EC Council Directive 93/13/EEC of 5 April 1993 on Unfair Terms in Consumer Contracts, OJ 1993, L95/29 (UCTD).
[8] The grey list is contained in the Annex to the UCTD and gives examples of terms referred to in Article 3(3)(1).
[9] Contrary to the title, The Principles of European Contract Law 1998 (PECL) are not law but an effort to develop a Civil Code for the European Union. They consist of three parts and are found at http://www.lexmercatoria.org. Part III was completed in 2002. The relevant provisions are: Art. 4.110 addressing unfair terms that have not been individually negotiated, and Art. 4.109 permitting a party to avoid a contract giving the other party an excessive benefit or unfair advantage.
[10] Id. at Art. 4.109 (permitting party to avoid a contract if at the time of its conclusion the party, among other things, was ignorant, improvident, inexperienced or lacking in bargaining skill, and the other party ought to have known of this deficiency.)
[11] E.g., The German Civil Code §§ 305 et. seq. repealing Gezetz zur Regelung des Rechts der Allgemeinen Geschaftsbegingunen, AGBG 1976 invalidating unfair contract terms, but incorporating the AGBG with minor changes. For an excellent analysis of German law governing standardized terms, see James R. Maxeiner, Standard-Terms Contracting in the Global Electronic Age: European Alternatives, 28 Yale J. Int'l L. 109, 141-156 (2003).
[12] Article 19 of the CISG is designed to resolve problems arising from the exchange of inconsistent standard forms. Its U.S. statutory antecedent is Uniform Commercial Code Article 2-207. While businesses routinely swap their privately drafted standard forms, the practice is uncommon in the consumer context, though theoretically there is no reason why U.S. consumers could not reply to unilateral change of terms provided by sellers or suppliers of goods and services with their own forms.
[13] Id. at Art. 2.19 defining a standard form contract, Art. 2.20 invalidating a term that the adherent could not possibly have expected to find in the contract, and Art. 3.10 authorizing a party to avoid a contract if a term unjustifiably gives the other party an excessive advantage. The Principles of International Commercial Contracts, Preamble, Purpose of the Principles, stating, "The Principles set forth general rules for international commercial contracts." The principles, like the PECL, are not law. Rather, they are a model law used mainly in arbitral decisions.
[14] Id. at Art. 1.9(1) mandating, "Each party must act in accordance with good faith and fair dealing in international trade." The characterization of the good faith principle as a "robust doctrine" follows from the heavy handed morality that permeates the Principles vindicating its premise of pacta sunt servanda and mutual obligation of loyalty between parties.
[15] A recent example of naked interests vying for legislative capital is illustrated by the process involved in the drafting of Revised Article 2 of the Uniform Commercial Code and the Uniform Computer Information Transactions Act. James R. Maxeiner, supra note 11 at 123-128.
[16] The European Union consumer protection approach also rests on a model of freedom of contract.
[17] ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996). Scholars never short on ability to coin new terms may displace the clarity of "pay now terms later" with the ambiguity of "rolling contract." Robert A. Hillman, Rolling Contracts, 71 Fordham L. Rev. 743 (2002); Rob Schultz, Rolling Contract Formation Under the UN Convention on Contracts for the International Sale of Goods, 35 Cornell Int'l L.J. 263 (2002).
[18] The argument that software licenses are different from ordinary contracts because they affect federal copyright law is like saying airway bills differ from ordinary contracts because they affect the common law of carriers.
[19] With respect only to Europe, Maxeiner has stated, "National laws that implement the Unfair Terms Directive are a reality throughout Europe. Americans--especially those doing business on the Internet-had better take account of them. With the impending enlargement of the European Union, American standard terms will be subject to scrutiny from Ireland to Poland and from Malta to Finland." James R. Maxeiner, supra note 11 at 171.
[20] The author has proposed one model in John J.A. Burke, Contract as Commodity: A Non-fiction Statutory Approach, 21 Statute L. Rev. 12 (2000).
[21] The law is the art of constructing logical constructs based on conduct in the real world. But, it is not broadly practiced. Legal theorists make logical constructs and then force the real world to fit inside them. Most theoretical works on contract law neither contain nor analyze one actual contract used in commerce. Rather, these works often discuss what other "thinkers," who also have not collected any empirical data, have said about contract law. This approach suffers from a deliberate avoidance of the commercial conduct it seeks to regulate.
[22] 350 F.2d 445 (D.C. Cir. 1965). E.g. Michael I. Meyerson, The Efficient Consumer Form Contract: Law and Economics Meets the Real World, 24 Georgia L. Rev. 583, 590 at note 39 (1990)(using facts of decision to show how risk is a price and to show why standardized terms may be inefficient because consumers cannot evaluate the cost of risk).
[23] David Begg, Stanley Fischer and Rudiger Dornbusch, Economics 8 (7th Ed. 2003).
[24] This statement assumes that human beings are rational maximizers of their self-interest. Richard A. Posner, Economic Analysis of Law 3 (1992).
[25] The model, like all economic models, is a deliberate simplification of reality. However, simplification is not equivalent to error. The model permits a manageable picture of how the economy works. Moreover, the data contained in Chapters One and Two support the model.
[26] For example, in the context of dispute resolution, Klaus Peter Berger states: "Indeed it is a common experience that in international commercial practice little if any attention is paid to the drafting of the dispute resolution clause. The parties usually do not read the whole set of the general contract conditions which are attached to a party's letter r fax, let alone review the dispute resolution clause located at the end of the conditions or in the final clause of a lengthy contract document. They want to conclude the deal instead of anticipating a future dispute scenario. They focus on the commercial aspects of the deal (price, goods, payment terms, delivery date, etc.) and for the rest, 'they just hope for the best.'" Klaus Peter Berger, Arbitration Interactive 15 (2002)(emphasis added, citation omitted).
[27] John J.A. Burke, supra note 20 at 14-15.
[28] In 1931, Karl Llewellyn clarified that there is no monolithic system of "traditional contract law." Karl N. Llewellyn, What Price Contract? - An Essay in Perspective, 40 Yale L. J. 704 (1931). However, the truth of that statement has neither stopped nor even slowed down scholars from using the term "traditional contract law " as shorthand for the standard rules taught in law school about contracts.
[29] Whether this legal concept of contract ever reflected contract practice is doubtful, but neither the courts nor the scholars have questioned its historical veracity.
[30] Morris R. Cohen, The Basis of Contract, 46 Harv. L. Rev. 553, 562 (1933).
[31] Charles Fried, Contract As Promise 17 (1981)(establishing contract in promises exchanged between the parties.)
[32] Detrimental reliance and other means of establishing contracts are not discussed here.
[33] Michael I. Meyerson, supra note 22 at 602.
[34] Id. at 605.
[35] The observation that, "A particular issue involving standard form contracts has recently presented itself. In the computer sales industry, where most transactions occur through telephone orders between the consumer and a sales representative, a standard form agreement is made available by the seller only after the consumer has paid for the purchase and the seller has shipped the goods," is patently false. Sajida A. Madhi, Gateway to Arbitration: Issues of Contract Formation under the U.C.C. and the Enforceability of Arbitration Clauses Included in Standard Form Contracts Shipped with Goods, 96 Nw.U.L.Rev. 403 (2001).
[36] Otto Prausnitz, supra note 5 at 8-20.
[37] Id. at 9.
[38] Id. at 11.
[39] The development of private contract law corresponds to the economic development of capitalism, particularly the transition from landed aristocracy to capitalist merchants. When the aristocracy lost its power to the capitalist class, the state and the firm entered a period of mutual antagonism. Standard form contracts illustrate this conflict, the state seeking to control the market for terms, the firm seeking to avoid state control. See, John Kenneth Galbraith, A Journey Through Economic Time 1-5 (1994)(stating, "Thenceforward there would be a conviction, especially in the English-speaking countries, that the state and industry were inherently at odds.")
[40] Otto Prausnitz, supra note 5 at 17.
[41] Id. at 17-18.
[42] Joseph H. Beale, Jr., Tickets, 1 Harv. L. Rev. 17 (1887).
[43] Edwin W. Patterson, The Delivery of a Life-Insurance Policy, 33 Harv L. Rev. 198 (1917).
[44] Id. at 200.
[45] W. David Slawson, supra note 1 at 529.
[46] The pre-fixed terms found in bills of lading dispel any notion that standardized terms are limited to consumer transactions. E.g., Reaseguros v. Sky Reefer, 515 U.S. 528 (1995)(enforcing arbitration clause contained in bill of lading involving transaction among New York purchaser, Moroccan supplier and Japanese company that time-chartered ship from Panamanian owner).
[47] Mail order did not originate with Ben Franklin. In the 16th century the first book catalogs were printed in Venice. Cecil C. Hoge, Sr., The First Hundred Years Are The Toughest 1 (1988).
[48] This language of limitation does not significantly differ from that found in airline tickets governed by the Warsaw convention or in commercial bills of lading governed by the Hague-Visby rules. See, Article 22 of the Convention for the Unification of Certain Rules Relating to International Carriage by Air, Signed at Warsaw on 12 October 1929 limiting liability for injury caused to passengers and damage caused to goods or luggage. While the Montreal Convention 1999 is designed to replace the 1929 Warsaw Convention and its subsequent modifications, the MC 1999 raises liability limits mainly for passenger injury or death and virtually precludes recovery for damage caused to goods.
[49] E.g., Montreal Convention 1999 (governing international air transportation); Hague-Visby Rules for maritime transportation (limiting liability for goods under Article IV(5)); and the Convention on the Contract for the International Carriage of Goods by Road 1978 (setting specific limits to carrier's liability).
[50] The term "meeting of the minds" is meaningless metaphysics. See, Edwin W. Patterson, supra note 43 at 209-19 and text infra at 61-62.
[51] The same reasoning is found in Carnival Cruise v. Shute, 499 U.S. 585 (1991), rendered more than 100 years later, where the Supreme Court enforced a choice of forum clause because the standard term of requiring litigants to sue in the State of Florida reduced the cost of passenger tickets.
[52] 154 U.S. 1 (1894).
[53] This statement sets forth the background rule applying in the absence of private terms. However, the background rule neither specifies minimum/maximum limits of liability nor could it. Hence, a legitimate role of private terms is to give concrete application to general background rules of law.
[54] 1
[54] U.S. at 15.
[55] Id. at 14.
[56] Id. at 25.
[57] Id. at 34.
[58] Had Primrose purchased the insurance option for a repeated message, he would have recovered 50 times the cost of the service or $57.50.
[59] 9 Exch. 345.
[60] 154 U.S. at 29.
[61] The animating legal principles underlying Primrose were exactly those used by Judge Richard Posner in Evra v. Swiss Bank Corp., 673 F.2d 951 (7th Cir. 1982), a case deemed "one of first impression," to limit the sender of a failed wire transfer to his money, interest lost, if any, and bank fee. Since there was no way for Swiss Bank to know that its failure to make a $27,000 deposit on behalf of an American firm to a Paris bank would result in a 2 million dollar loss to the American firm, Judge Posner stated that, under Hadley v. Baxendale, the American firm was not entitled to recover its consequential damages. Posner also grounded his decision in the mixed tort/contract doctrine of "avoidable consequences." The American firm, knowing the importance of making its payment on time, should have taken alternative methods to ensure the timely payment. Like Primrose, who failed to pay for a repeated message to ensure the accuracy of the text, the American firm failed to send the money by other means to ensure prompt payment. Thus, he who was in the best position to avoid the loss bore the consequences of his inaction.
[62] 112 U.S. 331 (1884)
[63] Id. at 338.
[64] Id. at 340.
[65] "There were garden catalogs, and by the 1700's they included stunning woodcuts of each species. By then, elegant catalogs for Wedgewood China and of the Sheffield plant and other pioneer English factories were printed in different languages. Orders came in from countries around the world." Cecil C. Hoge, Sr., supra note 47 at 1.
[66] Id. at 2
[67] Id. at 37.
[68] 1897 Sears, Roebuck Catalogue 2 (1993 Chelsea House).
[69] Id.
[70] Franklin set the same conditions: "TO BE SOLD for Ready Money Only" to anyone having the purchasing power to buy his books.
[71] Cecil C. Hoge, Sr., supra note 47 at 14.
[72] Id. at 32.
[73] Carnival Cruise v. Shute, 499 U.S. 585 (1991).
[74] Cecil C. Hoge, Sr., supra note 47 at 39.
[75] Id. at 27.
[76] Id. at 39
[77] "Despite the perception that information licenses are new, they have been a feature of the information industry at least since the modern business credit information came into its own in the 1850s. In 1859, a predecessor of Dun & Bradstreet issued its first printed book of credit ratings. The contract subject to which the book was distributed obligated the subscriber to keep the book on the designated premises of the subscriber, in a secure place, available without notice on call of the Company representative, and to surrender the book at the end of the year's subscription to the Company. Not only did the subscriber agree to keep the book secure, the subscriber also pledged to keep the information confidential. James D. Norris, R.G. Dun & Co. 1841-1900, The Development of Credit-Reporting in the Nineteenth Century 53-54 (1978)." (Courtesy of James R. Maxeiner).
[78] Because merchants often are buyers, they also use one-sided standardized documents, thereby leading to a "battle of the forms."
[79] Tables of the data, including the identification of the contracts, are set forth in the Appendix. If the nine additional Microsoft licenses are included in the count, the sample consists of 66 contracts. The contracts are archived in the author's files. Contrary to the statement in the Report from the Commission on the Implementation of Council Directive 93/13/EEC of 5 April 1993 on Unfair Terms in Consumer Contracts (2000) that contracts could not be obtained to support its market study, the author found it easy to collect approximately 100 documents.
[80] A principal aim of the Counsel Connect contract was to disclaim the creation of an attorney client relationship based on a subscriber's use of legal information posted on the discussion board.
[81] There are always "horror" stories found in reported cases and in the news media to excite the sentiment of observers. However, the market study showed that "horror" stories are likely the exception to the rule, matters at law's margins. Further evidence may contradict this conclusion, but until that further evidence is presented, the market study approximates reality.
[82] That contract was the American Express Optima Card account notice of amendment of the original account contract.
[83] The case law shows that litigation terms, particularly arbitration clauses, appear frequently in other categories of contracts such as hospital admission forms and employment agreements. E.g., Broemmer v. Abortion Services of Phoenix Ltd, 173 Ariz. 148, 840 P.2d 1013 (1992)(reversing, with a dissenting opinion, trial court judgment upholding arbitration agreement signed by patient at time of admission to abortion clinic); O'Hare v. Municipal Resources Consultants, 107 Cal.App.4th 267, 132 Cal.Rptr.2d 116 (Ct. App. 2003)(holding unconscionable arbitration clause in employment contract).
[84] Paragraph 28 also contained a waiver of defenses clause related to service of process by permitting service of process by certified mail return receipt requested delivered to the account holder's last known address.
[85] The standard procedure for short-term car rental agreements is to reserve the car by telephone or by Internet, appear at the car rental location and sign the contract without reading it. Some locations, such as airports, where customers wait in lengthy lines to pick up their cars, preclude any practical opportunity to read the car rental contract and object to any term.
[86] Consumers and merchants adopt standardized terms perfunctorily. These contracts are the not the products of consent, no matter what external sign - signature, use, opening a box, failure to return a product - are used to infer consent. Standard form contracts generally are not abusive, but contain a mixture of business and legal terms. However, peripheral terms sometimes cross the line of reasonableness and fair dealing. Some objectionable terms from the adherent's point of view are those sanctioned by sales law: (1) the disclaimer of the warranty of ordinary purpose and (2) limitations of liability.
[87] The prevalent notion that customers of standardized terms have no choice to shop for contract terms is false. The sample demonstrates that there are limited but significant differences in the contracts used in each sector. Rejecting a particular standard form contract may result in the inconvenience of finding a more suitable agreement.
[88] Linda J. Rusch, The Relevance of Evolving Domestic and International Law on Contracts in the Classroom: Assumptions about Assent, 72 Tul. L. Rev. 2043, 2073 (1998) (stating, "Current Article 2 is based upon the paradigm of agreement, the parties' bargain in fact.").
[89] Marcel Planiol, Treatise on the Civil Law §945, 545 (1959 translation by the Louisiana State Law Institute).
[90] Oliver Wendell Holmes, Jr., The Common Law 309 (1991 Dover ed.).
[91] The Principles of International Commercial Contracts and the PECL also are based on this paradigm. Article 8(1) of the CISG permits courts to inquire into the subjective intent of the party when making the contract to determine the agreed-to terms.
[92] Otto Prausnitz, supra note 5 at 41.
[93] Marcel Planiol, supra note 89 at §968, 561.
[94] Sir Henry Sumner Maine, Ancient Law 252 (1986 Dorset Press) originally published in 1861.
[95] Id. at 277.
[96] A. L. Corbin, Corbin on Contracts (West 1952) s. 607 at 555.
[97] Oliver Wendell Holmes, Jr., supra note 90 at 289-299.
[98] Id. at 304.
[99] Id. at 301. Europe does not fully accept this view preferring the remedy of specific performance to impose the Roman legal principle of pacta sunt servanda. The Europeans do not question the relevance of Roman law for contemporary commerce, though the political, legal and economic conditions of the Roman empire and the European Union are completely unalike.
[100] Id. at 309.
[101] Marcel Planiol, supra note 89 at §945, 545.
[102] E.g., Article 1-102(3) of the Uniform Commercial Code states in pertinent part, "The effect of the provisions of this Act may be varied by agreement, except as otherwise provided in this Act and except that the obligations of good faith, diligence, reasonableness and care prescribed by this Act may not be disclaimed by agreement," Article 5 of the Convention on Contracts for the International Sale of Goods (CISG), ratified by the United States in 1986, provides, "The parties may exclude the application of this Convention or, subject to article 12, derogate from or vary the effect of any of its provisions."
[103] Insurance Company v. Young's Administrator, 90 U.S. 95, 107 (1874).
[104] Yehle v. New York Cent. R. Co., 267 A.D. 301, 311, 46 N.Y.S. 2d 14 (Sup. Ct. App. Div.1943)
[105] Id.
[106] Edwin W. Patterson, supra note 43 at 209-11.
[107] Id. at 210.
[108] 67 N.J.L. 627 (Err. & App. 1902)
[109] Id. at 630.
[110] Id. at 631.
[111] Id.
[112] Id. at 632.
[113] Id.
[114] 499 U.S. 585 (1991).
[115] Id. at 587.
[116] Id. at 593.
[117] Id.
[118] Id. at 594.
[119] 86 F. 3d 1447 7th Cir. (1996).
[120] Id. at 1452.
[121] Id. at 1453.
[122] See text infra 141-145.
[123] Rudbart v. North Jersey District Water Supply Comm'n, 127 N.J. 34, 352 (1992).
[124] "Of the Declaration of the Will: A Contribution to the Study of the Juridical Act in the German Civil Code." [Translation by author].
[125] "Concerning the interpretation of the declaration of the will: searching for "real will" as opposed to the literal meaning of the term." [Translation by author].
[126] René Demogue, Modern French Legal Philosophy §262 471 (1916).
[127] Id. at 472.
[128] René Demogue, supra note 126 at 471-479.
[129] Demogue blamed the clashing interests of speed and security on United States practices. He stated, "What I would term Americanism in matters of business is a formidable machine of war of a nature to destroy security and to threaten justice." Id. at 476.
[130] Edwin W. Patterson, supra note 43 at 222.
[131] Karl N. Llewellyn, Book Review, 52 Harv. L. Rev. 700 (1939).
[132] Id. at 705. With the benefit of hindsight, now it can be said that Llewellyn's main contribution to the field of standard form contracts made thirty years later is derivative of, and modest by comparison to, the work of Prausnitz. American scholars have overlooked this seminal work because they do research based mainly on law review publications. Prausnitz's work is not contained in this box of materials. Prausnitz also was a practicing attorney in England, not a university professor. Scholars often treat the work of practitioners differently than they do the work of academic colleagues.
[133] Friedrich Kessler, Contracts of Adhesion - Some Thoughts about Freedom of Contract, 43 Colum. L. Rev. 629 (1943).
[134] Id. at 640.
[135] W. David Slawson, supra note 1 at 549.
[136] Id.
[137] Id. at 552.
[138] Id. at 553.
[139] Id.
[140] Id.
[141] Todd D. Rakoff, Contracts of Adhesion: An Essay in Reconstruction, 96 Harv. L. Rev. 1174, 1284 (1983).
[142] Id. at 1229. Rakoff did not explain the microeconomics upon which he based his conclusion.
[143] Id.
[144] Michael I. Meyerson, supra note 22 at 583.
[145] Id at 585.
[146] Id. at 587.
[147] Id. at 587.
[148] Id at 588.
[149] Id. at 589.
[150] Id. at 590.
[151] Id. at 591.
[152] Id.
[153] Id. at 593.
[154] Id. at 595.
[155] Id.
[156] Id. at 597-98.
[157] Id. at 602. The consumer's failure to understand the contract's terms even after purchase makes the time of delivery of the contract irrelevant to the question of whether its terms are valid.
[158] Id. at 603.
[159] Id. at 605.
[160] Id.
[161] Id.
[162] Id. at 608.
[163] See Robert W. Gomulkiewicz, The License Is the Product: Comments on the Promise of Article 2B for Software and Information Licensing, 13 Berkeley Tech. L.J. 891, 895-99 (1998) (noting that standard-form terms are ubiquitous in electronic commerce).
[164] 32 N.J. 383 (1960). The Court also permitted a party not in privity with the manufacturer to sue the manufacturer based on breach of contract.
[165] Id. at 384.
[166] Id. at 388.
[167] Id. at 389. In a subsequent decision, the New Jersey Supreme Court clarified that its holding in Henningsen was better explained, not in contract, but in tort creating strict liability for manufacturers introducing a defective product into the stream of trade that causes personal injury, death or property damage. Hence, under this theory, parties may disclaim the implied warranty of merchantability only as to economic loss, since any party sustaining personal injury or property damage as a result of a defective product may recover against the manufacturer under a theory of product liability.
[168] Id. at 386.
[169] 127 N.J. 344 (1992).
[170] Id at 356.
[171] Id.
[172] 346 N.J.Super. 42 (App. Div. 2001), certif. denied, 171 N.J. 445 (2002).
[173] Id. at 55.
[174] In Re American Homestar of Lancaster, 50 S.W.3d 480 (Tex. 2001).
[175] 99 Cal. Rptr.2d 745, 6 P.3d 669 (2000).
[176] 118 Cal. Rptr.2d 862 (Ct. App. 2002).
[177] Id. at 867.
[178] 123 Cal.Rptr.2d 288 (Ct. App. 2002)
[179] Id. at 293.
[180] Courts also rely upon the contra proferentum principle and interpret ambiguous contract language against its drafter to protect the weaker party against oppressive terms.
[181] These "tools" supplement the standard contract law defenses of fraud, duress, mistake, impossibility and illegality to allow a party to avoid contract obligation. "[S]ome of these defenses have to do with the process of contracting and others have to do with the resulting contract." Arthur Allen Leff, Unconscionability and the Code - The Emperor's New Clause, 115 U. Pa. L. R. 485 (1967). However classified, contracts obtained by these means may be avoided.
[182] Karl Llewellyn, The Common Law Tradition 365 (1960) quoting Llewllyn, Book Review, 52 Harv. L. Rev. 700, 703 (1939).
[183] Section 2A-108 entitled "Unconscionability" states:
"(1) If the court as a matter of law finds a lease contract or any clause of a lease contract to have been unconscionable at the time it was made the court may refuse to enforce the lease contract, or it may enforce the remainder of the lease contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.(2) With respect to a consumer lease, if the court as a matter of law finds that a lease contract or any clause of a lease contract has been induced by unconscionable conduct, the court may grant appropriate relief.
(3) Before making a finding of unconscionability under subsections (1) or (2), the court, on its own motion or that of a party, shall afford the parties a reasonable opportunity to present evidence as to the setting, purpose, and effect of the lease contract or clause thereof, or of the conduct.
(4) In an action in which the lessee claims unconscionability with respect to a consumer lease:
(a) If the court finds unconscionability under subsections (1) or (2), the court shall award reasonable attorney's fees to the lessee.
(b) If the court does not find unconscionability and the lessee claiming unconscionability has brought or maintained an action he [or she] knew to be groundless, the court shall award reasonable attorney's fees to the party against whom the claim is made.
(c) In determining attorney's fees, the amount of the recovery on behalf of the claimant under subsections (1) and (2) is not controlling."
UCC Section 2A-108 is similar but not identical to UCC Section 2-302. Section 2A-108 contains specific consumer rights and attorney's fees provisions unlike Section 2-302. Section 2A-108 also goes beyond the four corners of the contract itself and includes the pre and post-contract conduct of the lessor. Section 2-302 does not address these issues. Nevertheless, the primary unconscionability test of Section 2A-108(1) and Section 2-302(1) are the same. Only five reported cases have been decided under Section 2A-108, the analog of Section 2-302 for lease agreements. No case has invalidated a lease contract or term on the ground of unconscionability.
[184] Arthur Allen Leff, supra note 181 at 527.
[185] According to Webster's Third New International Dictionary (Unabridged), the term "unconscionable" means "1: not guided or controlled by conscience: unscrupulous, 2a: excessive, exorbitant, b: lying outside the limits of what is reasonable or acceptable: shockingly unfair, harsh, or unjust: outrageous."
[186] Kugler v. Romain, 58 N.J. 522, 543-44 (1971).
[187] Arthur Allen Leff, supra note 181 at 516.
[188] Earl of Chersterfield v. Janssen, 2 Ves. Sr. 125, 128; Eng. Reprint, 82 1 ATk. 301, 26 Eng. Report, 191, 18 Eng. Rul. Cas. 289 (1750).
[189] Fanning v. Fritz's Pontiac-Cadillac-Buick Inc., 472 S.E.2d 242, 245 (1996). In the context of standard form contracts, unconscionability is characterized by the "absence of meaningful choice on the part of one party due to one-sided contract provisions, together with terms which are so oppressive that no reasonable person would make them and no fair and honest person would accept them."
[190] James. R. Maxeiner, supra note 11 at 120.
[191] Evelyn L. Brown, The Uncertainty of U.C.C. Section 2-302: Why Unconscionability has Become A Relic, 105 Com. L. J. 287 (2000).
[192] Gray v. Zurich Insurance Co., 65 Cal.2d 263, 419 P.2d 168, 54 Cal.Rptr. 104 (1966), quoting Friedrich Kessler, supra note 133 at 637.
[193] James R. Maxeiner, supra note 11 at 120.
[194] 133 Cal Rptr. 775 (Cal. Ct. App. 1976).
[195] Id. at 782.
[196] Id. at 786.
[197] Id. at 783.
[198] Id. at 786.
[199] Id. at 797.
[200] Restatement (Second) of Contracts §211 (1981), comments.
[201] E.g., Arizona, California, District of Columbia, Massachusetts and Tennessee. Id. at Reporter's Note, case citations.
[202] 828 P.2d 162 (1991).
[203] Id. at 163.
[204] Id.
[205] Id. at 164.
[206] Id.
[207] Id. at 165.
[208] Id. at 164.
[209] Id. at 165.
[210] Id.
[211] 350 N.J. Super. 403 (L. Div. 2000).
[212] Id. at 408.
[213] Id.
[214] Black's Law Dictionary 179 (Rev. 4th ed. 1994).
[215] U.C.C. 7-102.
[216] 350 N.J.Super. at 406.
[217] Id. at 409 and UCC 2-302.
[218] 350 N.J.Super. at 410.
[219] René Demogue, supra note 126 at 477.
[220] Id.
[221] Id. at 478.
[222] Otto Prausnitz, supra note 5 at 143.
[223] Id. at 142.
[224] Id. at 144.
[225] Id.
[226] Id.
[227] Id.
[228] Karl N. Llewellyn, supra note 182 at 370.
[229] Id.
[230] Todd D. Rakoff, supra note 141 at 1205.
[231] W. David Slawson, supra note 1 at 530-31.
[232] Id. at 532.
[233] Id. at 533.
[234] Id. at 535.
[235] Todd D. Rakoff, supra note 141 at 1260.
[236] Id. at 1264.
[237] Id.
[238] Id. at 1259.
[239] Id. at 1260.
[240] Michael I. Meyerson, supra note 22 at 611.
[241] Id.
[242] Id.
[243] Id. at 612.
[244] Id. at 618.
[245] Id. at 619.
[246] Id. at 622.
[247] Report from the Commission, On the Implementation of Council Directive 93/13/EEC of 5 April 1993 on Unfair Terms in Consumer Contracts, 13 (2000) (Report from the Commission).
[248] Id. at 9. However, the conclusion is not supported by reference to any existing contract term; hence, it is not susceptible to analysis. For contrary experience in collecting documents, see supra note 79.
[249] Report from the Commission, supra note 247 at 13.
[250] UCTD, supra note 7. In addition to the UCTD, the EU has adopted several other directives respecting consumers: Distance Selling Directive (97/7/EC)(protecting consumers in respect of distance contracts concerning goods); Directive 98/27/EC on injunctions for the protection of consumer’s interests (providing mechanism to obtain injunction to protect collective interests of consumers); Directive 1999/44/EC on certain aspects of the sale of consumer goods and associated guarantees (providing warranty protection); Directive 2002/65/EC concerning the distance marketing of consumer financial services and amending Council Directive 90/619/EEC and Directive 97/7/EC and 98/27/EC (regulating the cross-border provision of consumer financial services). The Electronic Commerce Directive 2000/31/EC also contains provisions to protect consumers by requiring the mandatory disclosure of specified information. The text does not examine the minutiae of these Directives but focuses upon the general EU approach to consumer protection: a mix of disclosure and prohibition.
[251] It was not until 1998 that all member states had implemented the regulation; some implementations are incorrect transpositions. Report from the Commission, supra note 247 at n. 6.
[252] E.g., German Civil Code (Bürgerliches Gestzbuch) §§305-309 (repealing Gesetz zur Regelung des Rechts der Allgemeinen Geschaftsbedingungen (AGBG) effective 1 January 2002 and setting forth scheme to determine when standard form terms become part of the contract); Code de la Consummation, Art. L132-1, 132-2 and R-132-3 (implementing EU Directive and authorizing Ministry of Consumer Protection to identify and prevent abusive terms in the market).
[253] Standard form contract terms are addressed in several council directives. E.g., Directive 97/7/EC of 20 May 1997 on the protection of consumers in respect of distance contracts (approximating laws on distance contracts between consumers and suppliers and giving consumers absolute right of rescission). However, the most significant directive is the UCTD.
[254] Article 4(1)
[255] Article 3(2)
[256] E.g., Case No. BE000567, Europa Clab Database, validating acceleration clause plus 15% penalty, based on buyer's failure to make eight consecutive payments under financing agreement for sale of automobile.
[257] UCTD Art. 7(2), supra note 7 and James R. Maxeiner, supra note 11 at 136.
[258] The New Jersey Law Revision Commission in its Final and Report and Recommendations on Standard Form Contracts followed exactly this approach; the Report is found at http://www.lawrev.state.nj.us/rpts/contract.pdf. It identified recurring and potentially objectionable terms in standard form contracts and then formulated rules to govern them. Thus, it went beyond the structure of the Directive, limited to compilation of a list.
[259] Directive 1999/44/EC of 25 May 1999 on certain aspects of the sale of consumer goods and associated guarantees (defining "guarantee" as any undertaking by a seller or producer to the consumer, given without extra charge, to reimburse the price paid or to replace, repair or handle consumer goods in any way if they do not meet the specifications set out in the guarantee statement or in any relevant advertising).
[260] Report of the Commission, supra note 247 at 24.
[261] Id. at 24.
[262] German Civil Code (Bürgerliches Gesetzbuch) §§ 305 et seq. effective 1 January 2002. While the AGBG was repealed, it was incorporated virtually unaltered in the new Civil Code.
[263] The German Civil Code also provides numerous other protections for consumers with respect to specific contracts and specific rights and obligations. E.g., distance contracts (implementing EU Directive 97/7/EC of 17 February 1997 and requiring disclosure of information and providing statutory right of cancellation) §312; right of revocation and of return in consumer contracts (providing that, if consumer has statutory right of return, he is not bound by contractual term to the contrary) §355; and special rules governing sale of goods in consumer transactions (providing in part that seller of new goods cannot disclaim obligation to deliver product free of defects and claims) §474 et seq.
[264] James R. Maxeiner, supra note 11 at 146.
[265] Ordonnance n° 2001-741 of 23 august 2001 codified at Code de la consummation Article l-132-1 and 2.
[266] Ole Lando, The Structure and the Salient Features of the Principles of European Contract Law, 4 Juridica Int'l 4, 5 (2001).
[267] Id. at 5-6.
[268] Ole Lando, supra note 266 at 8-9.
[269] Id. at 10.
[270] 16 Emory Int'l L. Rev. 1 (2002). Bate's discussion of the law of "West Germany" is based upon the repealed AGBG. His analysis also depends heavily upon the "Nordic" approach, known for its liberal use of "good faith" to declare terms unfair without bothering to define the meaning of the latter term.
[271] Bates and other repose their hopes in the FTC.
[272] James R. Maxeiner, supra note 11 at 123-126.
[273] Only the States of Virginia and Maryland have enacted UCITA. There are two introductions in 2003: Nevada and Oklahoma. See http://nccusl.org/nccusl/uniformact_factsheets/uniformacts-fs-ucita.asp. Section 102(a)(43) of UCITA states, a "mass market license means a standard form used in a mass-market transaction." The prospects for widespread enactment of UCITA in the United States are uncertain due to severe opposition by consumer and academic groups.
[274] Joseph H. Sommer, Against Cyberlaw, 15 Berkeley Tech. L.J. 1145 (2000)(debunking the myth that the technology of the Internet requires the spawning of new legal rules).
[275] Amelia H. Boss, Taking UCITA on the Road: What Lessons Have We Learned?, 673 PLI/Pat 121 (2001).
[276] Sajida A. Madhi, supra note 35.
[277] E.g., Edwin W. Patterson, supra note 43 and Joseph H. Beale, Jr., supra note 42.
[278] 499 U.S. 585 (1991)
[279] 939 F.2d 91 (3rd Cir. 1991)
[280] The battle of the forms refers to the situation where one business entity makes an offer by using a pre-printed form contract, and the other business entity accepts that offer by responding with its own pre-printed form contract. See UCC Art. 2-207 and CISG Art. 19.
[281] 104 F. Supp. 2d 1332 (D. Kan. 2000)
[282] The parties filed several motions. On November 22, 1999, Gateway filed a Motion to Dismiss. On December 22, 1999, Hewlett Packard filed a Motion to Dismiss or In the Alternative for Stay of Proceedings. On October 29, 1999, Klocek filed a Motion to Certify a Class. On December 3, 1999, he filed a Motion for Sanctions, Expenses and Punitives (sic). On December 6, 1999, he filed a Motion for a Writ of Certiorari and finally, on January 25, 2000, he filed a Motion for Verification.
[283] The court then granted Hewlett Packard's Motion to Dismiss for lack of subject matter jurisdiction; denied Klocek's Motion to Certify a Class; denied Klocek's Motion for Sanctions, Expenses and Punitives (sic); and denied Klocek's Motion for Writ of Certiorari and Motion for Verification. The Court ordered Gateway to file a supplemental motion to dismiss and compel arbitration were Gateway to contend that the law of a jurisdiction other than that of Kansas or Missouri applied to the case.
[284] 939 F.2d 91 (3rd Cir. 1991).
[285] 831 F. Supp. 759 (D. Ariz 1993).
[286] 5 F. Supp.2d 1201 (D. Kan 1998), aff'd, 185 F.3d. 885 (Fed. Cir. 1999).
[287] 105 F.3d 1147 (7th Cir.), cert. denied, 522 U.S. 808 (1997).
[288] 86 F.3d 1447 (7th Cir. 1996).
[289] 140 Wash. 2d 568, 998 P. 2d 305 (2000).
[290] This method of analysis is like putting the rabbit inside the hat, taking it out, and then calling it magic.
[291] Who is the offeror and who is the offeree is an optical illusion. Take a drawing that if looked at one way appears to be a beautiful woman and if looked at another way appears to be a witch. The court's angle of view also determines the classification of offeror in legal cases.
[292] 150 F.Supp.2d 585 (S.D.N.Y. 2001).
[293] Id. at 587.
[294] Id. at 595.
[295] 306 F.3d 17 (2nd Cir. 2002).
[296] 2002 WL 15592 (D. Mass. 2002).
[297] 86 F.3d 1447 (7th Cir. 1996)
[298] The parties in Step-Saver were merchants that had a continuing and stable business relationship. Step-Saver was a value added retailer for IBM products combining hardware and software to satisfy the needs of its clients, lawyers and doctors. TSL manufactured an operating system called MultiLink Advanced for multi-user systems. TSL did not market its products to consumers at the retail level. Step-Saver contacted TSL for information and to arrange for the delivery of test products so that Step-Saver could determine the suitability of the program prior to buying it. Step-Saver, in no uncertain terms, repeatedly objected to TSL's "box top" license. Despite that rejection, TSL continued to ship its software.
[299] 831 F.Supp. 759 (D. Ariz. 1993). In Arizona, ARS, a value added reseller, bought PC-MOS software from TSL (the TSL in Step-Saver), customized and resold the software to its clients, mainly law firms. The parties contested the validity of the "box top" license. The Arizona Court determined that the key was the timing of contract formation. In the first transaction, ARS ordered an evaluative and live copy of the software and TSL shipped the product to ARS. The "materials were wrapped in "shrink-wrap" plastic, upon which was fixed a "Limited Use License Agreement." Because ARS opened the package and kept the software, the Court found that the contract of sale was formed at the time of opening the box and therefore, the contract of sale included the license terms. However, with regard to all subsequent transactions made by purchase order and invoice and shipment of boxes containing the identical Limited License Agreement, the Court found that the contract was made at the time of shipment and therefore did not include the license terms because the boxes hadn't yet arrived at ARS. Following the exact rationale of Step-Saver, the Arizona Court treated the "box top" license as unaccepted additional terms under UCC 2-207.
[300] 5 F.Supp. 2d 1201, 1212 (D. Kan 1998).
[301] 86 F.3d at 1452.
[302] Robert A. Hillman, Rolling Contracts, supra note at 17.
[303] Making distinctions of this sort for standardized terms is as relevant as the choice of which pants "Vinny" was going to wear to kill deer in the movie "My cousin Vinny." His fiancée replied, and I am paraphrasing, "do you think the deer cares which pair of pants the son of a bitch that is going to kill him is wearing?" The analogy between the type of pants and the type of transaction speaks for itself.
[304] The term "standard form contract" has already been defined: a contract regularly used in an open market transaction to govern the legal relationship between the parties.
[305] The legal objective of the form-tax, super priority against the bankruptcy trustee-is irrelevant for the determination of validity.
[306] David Begg, supra note 23 at 119-124.
[307] In the post-Enron age, this statement is likely to raise eyebrows. However, legal rules should not be knee-jerk reactions to topical events. In the 1960's, the corporation served as a target of derision for writers like Herbert Marcuse in One Dimensional Man (1964)(accusing corporate, state and private, from inhibiting individual self-realization. In the 1980's, the corporation was somewhat rehabilitated during the period of Reaganomics when Wall Street generated immense wealth. In the 1990's, the firm did no wrong provided it sated the greed of founders and shareholders for extraordinary profits. Episodic excess is not an ideal base upon which to develop long-term legal rules.
[308] In addition, certain risks are not insurable and insurance policies contain exclusions and maximum payouts. Hence, firms will allocate the cost of uninsured risks to customers. Forbidding firms from capping their liability also may drive small or medium enterprises from the market.
[309] Illustrative is the increased power of consumers to gain timely and accurate information about their products through the Internet. MIT Sloan School of Management, Consumer Power & the Internet 1 (2002) available at http://mitsloan.mit.edu/50th/consumerpowerpaper.pdf.
[310] E.g., Should You Lease Your Next Vehicle available at http://www.dca.org/pubs/pdf/leaseorbuy.pdf.
[311] Firms cater to buyer tastes. Not every buyer is risk averse. Insurance leaves buyers with fewer assets because the price of safety ordinarily exceeds the price of the risk occurring.
[312] Peer to peer technology users provide convincing evidence that consumers, when they put their mind to it, are not the witless victims of clever enterprises. If anything, they are more nimble than their organizational adversaries.
[313] David Begg, supra note 23 at 199.
[314] It does not follow that the lower cost and greater choice follow from standardized terms shifting certain risks to buyers. However, in Europe where the law permits less risk shifting, prices on average are higher. Though part of this higher cost is attributable to the European VAT system, the question arises what is the cost of paternal regulation.
[315] The term "agreement" does not require negotiation. It requires consent, that is, making a choice with eyes wide open.
[316] The reported decisions for cars stolen from commercial parking lots reflect this view. Compare In California State Auto. Ass'n Inter-Ins. Bureau v. Barrett Garages, Inc., 257 Cal. App. 2d 71, 64 Cal. Rptr. 699 (Cal. Dist. Ct. App. 1968) with Gardner v. Downtown Porsche Audi, 180 Cal.App.3d 713, 225 Cal.Rptr. 757 (Ct. App. 1998).
[317] Tort lawyers may argue the bailee should have known of the danger and taken appropriate protection measures. In this example, assume a safe neighborhood and this act a deviation from the norm.
[318] If the parking lot were negligent, some courts might find that the limitation of liability violates public policy, because the delivery of the ticket does not create a contract as a matter of law or because the ticket attempts to disclaim tort liability. But other courts might find that the Edison parking ticket is a valid limitation of liability. The Restatement of Contracts (Second) rule permits exemption from ordinary negligence where the public interest is not involved and the exemption does not violate a statute.
[319] The case of Gardner v. Downtown Porsche Audi, supra note 316, reached a similar result on different grounds. Gardner left his Porsche with Downtown to be repaired. He signed a standardized form that stated: "Not responsible for loss or damage to cars or to articles left in cars in case of fire, theft or any other cause beyond our control." The Porsche was stolen from Downtown's garage. Although Downtown admitted it was negligent, the repair garage argued that the disclaimer absolved it of liability for the failure to exercise due care. Citing an 1872 California statute and the Restatement of Contracts (Second), the court found that the law of California provided that persons cannot contract away their torts when the contract involves the public interest. Applying a six part public interest test established by Tunkl v. Regents of University of California, 60 Cal.2d 92, 383 P.2d 441, 32 Cal.Rptr. 33 (1963), the court, after deeming Southern California the capital of the motor vehicle, found that automobile contracts affect the public interest and standardized terms that disclaim responsibility for torts violate public policy.
[320] 6 Ariz. App. 21, 429 P. 2d 513 (Ariz. Ct. App. 1967).
[321] Id.
[322] As a practical matter, the Mercedes-Benz owner can recover under his automobile policy and/or home owner's insurance thereby leaving the loss to be allocated between the insurance companies of the owner and the parking lot. But this remark begs the question. If the parking lot is liable even if it exercised due care, the question is: can the firm obtain insurance and if yes what is the likely impact on prices.
[323] The EU practice of authorizing state institutions and professional consumer protection organizations to bring actions against firms on behalf of consumers follows from the fact that, in Europe, private class actions are generally prohibited, most Member States have loser pay rules, and lawyers are prevented from accepting cases based on contingency fee arrangements. Hence, the individual EU consumer is unlikely to bring a lawsuit against a firm unless the amounts involved, and the potential to win the case, are substantial. These conditions do not pertain to the United States legal system.