Dee Pridgen’s Important Guest Post: Update on the ALI’s Proposed Restatement of Consumer Contracts: Will it Perpetuate a Legal Fiction?

ALI’s Proposed Restatement of Consumer Contracts – Perpetuating a Legal Fiction?

By Dee Pridgen

            The members of the American Law Institute (ALI) are currently working on what may ultimately become “The Restatement of Consumer Contracts.” This project could provide an opportunity for real law reform. Indeed, the original goals of the ALI include adapting the law to social needs, and the better administration of justice as well as reflecting the law as it stands.

I have been involved with the American Law Institute’s proposed Restatement of Consumer Contracts project as a member of the advisory committee for the past four years. This would be a supplemental Restatement separate from the existing Restatement (Second) of Contracts, which already exists. The Consumer Contracts project is now in its 2nd preliminary draft. The draft still has to go through a process of approval by the ALI Council and the ALI general membership before it becomes final. So bear in mind the proposed Restatement is not yet an official final document of the ALI, and there is still time to reshape it.

            The ALI Restatements of Law are aimed at common law doctrines. While much of consumer law is governed by statutes and regulations, there is at least one area where the common law of contracts is having a big impact on consumer law, and that is the application of the so-called “duty to read” doctrine to online standard form contracts. One-sided and unfair clauses are increasingly showing up in the scroll down box, or the multi-page link, or even in the shipping container or on a hyperlink that is only accessible after the purchase has been made.

Along with the switch from paper to online contracts for consumer sales, it has become easier for business parties to draft ever-lengthier self-serving contract terms that consumers neither read nor understand. Consumers routinely click the “I Agree” or “I accept” button, or just continue using the website after having access to the terms, thus giving the appearance of assent. At the same time, recent cases in this area have actually relaxed assent rules, and will bind consumers with only minimal requirements of notice and opportunity to read the terms. Unfortunately, many times these standard form contracts contain unwelcome clauses such as mandatory arbitration clauses, waivers of class actions, non-disparagement clauses and agreements to the sale or sharing of personal information.

An empirical study performed by one of the very Reporters for the Consumer Contract Project, Florencia Marotta-Wurgler, showed that only one or two in every 1,000 shoppers access the computerized terms for even one second prior to clicking “I agree.” Yannis Bakos, Florencia Marotta-Wurgler, and David R. Trossen, Does Anyone Read the Fine Print? Consumer Attention to Standard Form Contracts, 43 J. Legal Studies 1 (2014). And of course the reason no one reads the terms is that they are long, difficult if not impossible to understand, and probably better terms will not be found elsewhere.

The Reporters of the proposed Restatement freely admit in their Introductory Note to the latest draft that the consumer’s “I Accept” click is at most a statement that “I know I am agreeing to something, but I don’t know to what. I trust that if something really bad is buried in the fine print, the law will protect me from its bite.” And yet, the draft Restatement in its current form accepts the cases that bind consumers to standard form contracts whether presented by “click wrap,” “browse wrap,” or “Pay Now, Terms Later,” as long as there is some “manifestation of assent” combined with an adequate notice of terms. Since this “assent” is neither meaningful nor informed, the consumer assent in this context is a legal fiction.

The Reporters say that the relaxed standard of assent is needed to make sure that online commerce can go forward because consumer contracts must be formed in an efficient manner. Consumers usually at least know the basic terms of the transaction, such as what product they are buying, the price, and the shipping terms. As to the other terms, all agree it would be impractical to force people to actually read and understand these terms prior to consenting. So the Reporters for the Restatement of Consumer Contracts propose a “grand bargain”: “fairly unrestricted freedom for businesses to draft and affix their terms to the transaction, balanced by a set of substantive boundary restrictions, prohibiting businesses from going too far.” The restrictions that keep businesses from going too far are mainly the doctrines of unconscionability and the law of deception.

The proposed Restatement’s Unconscionability section states that a contract term should be deemed “unconscionable” and therefore unenforceable if the term is both substantively and procedurally unconscionable. A sliding scale approach is recommended. The section on Deception states that “a contract or term agreed to as a result of a deceptive act or practice is voidable by the consumer.” This seems to reflect current contract law if nothing else.

The “grand bargain,” unfortunately, isn’t very “grand” for consumers. First, once common law judges can use the new Restatement (if adopted) to conclude there is “assent” by the consumer, even though it’s a legal fiction, they are not likely to deliver on the other part of the bargain by strengthening the unconscionability or deception doctrines. Most tradition-bound judges applying common law doctrines just don’t like to interfere with contracts in this manner. Nor will the private arbitrators to whom many consumer disputes are being referred these days.  Secondly, the “grand bargain” approach puts the burden on the consumer to use unconscionability or deception as a shield against unfavorable clauses.

What I would like to see, would be a revision of the section on “Adoption of Standard Contract Terms” that would say something like this:

The consumer constructively agrees to adopt the conscionable and non-deceptive terms to which they have signified assent. The consumer is not legally bound by any terms that are unconscionable or result from a deceptive act or practice. The party seeking to enforce a contract term has the burden of proving that the terms are neither unconscionable nor based on a deceptive act or practice.

The ALI could use its power and prestige to seize this opportunity to reform the law of consumer contracts. If it chooses not to do so, courts will continue to enforce these online standard form contracts based on the legal fiction that the consumer has “assented,” as long as the sellers go through the pro forma exercise of properly designing the website and the notice and assent mechanism. Please urge the ALI to adopt a “Restatement of Consumer Contracts” that deals with the reality of consumer contracting, rather than promoting the enforcement of “agreements” that are not really agreed to in any meaningful sense of the term.

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