09 July 2014

Fair Deals, Just Price Theory, and Standard Form Contracts

Everyone wants a fair deal, right? And prices should be just, shouldn't they? Well, what does a fair deal or just price mean in a world of standard forms, click-wrap, and browser-wrap contracts? You know, those contracts you sign or click every couple of days but never take the time to read. Those that after something goes wrong, you find out that you "agreed" that the other party doesn't have to do much--if anything--about it.

Contract law is premised on the notion of mutual assent but what does that mean when legions of parties don't know what they're signing (or clicking) and the other party knows full well that you haven't? Contract scholars (although not courts) have been debating this turn in contract practice for over 50 years without consensus. Judges, on the other hand, simply rubber stamp whatever the document (physical or electronic) says because they don't want to upset the apple cart of the modern economy driven by consumer spending.

I've given the phenomenon of enforcement of standard form contracts some thought and concluded that Randy Barnett provides the best justification for them. (You can read some other of my posts about Barnett's ideas here, here and here.) I won't bore anyone with Barnett's theory of why purported assent to unknown terms should bind us because my colleague Kenny Ching does a fine job of explaining it in What We Consent to When We Consent to Form Contracts: Market Price.

Not only does Kenny explain Barnett's account, he attempts to undermine it and proposes a radically minimalistic account of that to which we are bound when we click or sign what everyone knows we have not read: to pay the market price. Or, to elaborate slightly, we agree to pay the market price for what we get (software or a vacation cruise) taking into account the multiple slights the institutional drafter inserted. Thus, for example, if the market price for a cruise with the right to sue in our home state for an injury suffered due to the negligence of the crew is x, then the same cruise with a right to sue only in a far-away state should be x-y--the just price. (Yes, Kenny retrieves just price theory from the dustbin of history.) If the surreptitious cruise line nonetheless charges full price by failing to knock y off what it charges, we paid more than the just price and didn't get a fair deal.

I have some quibbles with Kenny's argument and conclusions but his is nonetheless a valuable contribution to the ongoing debate. Read it for yourself and get back to him with your thoughts; I'm certain he'd appreciate them.

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