Restating the “Law”, by Clayton P. Gillette

by Guest Blogger — Monday, Mar. 18, 2019

How would one go about the process of discovering the law related to a field such as consumer contracts in order to incorporate it into a “Restatement”?  Presumably, a scholar would be concerned with the reasoning of courts as they apply legal principles “on the ground,” a practice that transcends recitations of doctrine classified in categories such as “holdings” or “dicta.”  Instead, one would consider the court’s discussion of the potentially applicable legal rules and, given the facts before it, what the court determined was the most appropriate rule to resolve the case.  This is the lesson of Holmes’s admonition in The Path of Law that one “mark of a great lawyer is that he sees the application of the broadest rules.”[1]  Holmes illustrated his view with an apocryphal story of a Vermont Justice of the Peace who rejected a complaint that the defendant had broken the plaintiff’s churn because the judge had looked through the laws and found nothing about churns.[2]  That non-churn cases could have relevance to liability for broken churns seems to have escaped the justice’s analysis.

This is the trap that critics of the draft Restatement of Consumer Contracts have set for themselves when, for example, they reject as “irrelevant” or “inapposite” the Reporters’ empirical findings that rely on analyses of consumer law not embodied in holdings, or when they suggest that the Reporters should have wholly disregarded cases that fall into discrete categories, such as “statutory” cases or those that involve “atypical” situations, as the critics characterize arbitration clauses inserted into credit cardholder agreements.[3]  To see the problem, one need look no further than the reliance of Levitin et al. on Stiles v. Home Cable Concepts, Inc.,[4] the first case they mention in their appendix of allegedly inapposite “statutory” cases.  The court’s statutory discussion in that case was invoked to confirm a significant discussion based on common law to the effect that an arbitration clause was valid and conscionable, although not independently signed.  The court concluded, “[f]ar from being unconscionable, the procedure to which Stiles objects is specifically sanctioned by the [statutory] law which applies to this contract.”[5]  Regardless of whether the “holding” of the case was predicated on both common law reasoning and statute, or only on the latter, one would be hard pressed to suggest that the court’s common law analysis was irrelevant or inapposite to a study of how courts have addressed the conditions under which consumers are bound by contracts.

Indeed, many of the chestnuts of Contracts courses would be “irrelevant” to our understanding of contract law if judicial discussions were rejected in favor of examining narrowly considered holdings or dicta.  The textbook staple of Transatlantic Financing Corp. v. United States,[6] for example, would tell us little about commercial impracticability under § 2-615 of the Uniform Commercial Code, as the case did not involve a sale of goods, and the D.C. Court of Appeals “held” little more that the contract therein was not rendered legally impossible.  But the case is understood as an exemplar of the situation that § 2-615 addresses, given the court’s discussion of the elements of impracticability and application of those elements to the facts before it.  Of course, one might contend that the holding in Transatlantic Financing should be stated more broadly to include the proposition that a contract that meets the criteria of impracticability discussed within the case is subject to excuse.  That may be a fair reading of the concept of “holding”.  But then a similarly broadened understanding of the “holding” in cases like Stiles is appropriate to subsume the court’s common law reasoning and place it squarely within the Reporters’ study.

My objective here, however, is not to defend a narrow or broad reading of the concept of “holding.”  To the contrary, it is to suggest that the principles for which cases stand, and thus the principles that inform a body of law such as consumer contracts, must be detected through a process that cannot be limited to “holdings,” howsoever narrowly or broadly construed.  If the Reporters had been charged with setting forth black letter doctrine unrelated to credit cards, or with identifying contracts cases not decided on the basis of statutes, the objectors’ points would make sense.  But that is not the task of the Restatement.  Instead, in supplementing the standard ALI analysis with an empirical study, the Reporters have attempted to consider the law as discerned from what courts say and do. In furtherance of that goal, the Reporters have counted as relevant those cases that discuss the law of consumer contracts as it has emerged in an era characterized by mass markets and technological innovation, and that therefore disrupts many of the bedrock principles of traditional contract law.  Doing so requires attention to the manner in which courts have wrestled with novel developments in a variety of contexts, to look for consistencies and commonalities.  An exercise that relied solely on counting cases based on bottom line holdings would likely miss the pertinent “churns cases” and thus do a disservice to the very project the Reporters have been asked to undertake.

Clayton P. Gillette is the Max E. Greenberg Professor of Contract Law at NYU School of Law and an Adviser to the American Law Institute’s Restatement of the Law, Consumer Contracts.

This post is part of a symposium on the Draft Restatement of the Law of Consumer Contracts. All of the posts in this symposium can be viewed here.

[1] Oliver W. Holmes, The Path of the Law, 10 Harv. L. Rev. 457, 474 (1897).  Cf. Frank H. Easterbrook, Cyberspace and the Law of the Horse, 1996 U. Chi. L. Forum 207.

[2] Id.

[3] Levitin et al. at 456.

[4] 994 F.Supp. 1410 (M.D. Ala. 1998).

[5] 994 F. Supp. at 1418.

[6] 363 F.2d 312 (D.C. Cir. 1966).

Cite As: Author Name, Title, 36 Yale J. on Reg.: Notice & Comment (date), URL.

One thought on “Restating the “Law”, by Clayton P. Gillette

  1. Nancy Kim

    I am a co-author with Levitin, et. al. but write on my own behalf. My initial objection to the case counting method utilized by the Reporters was that it looked only at outcomes and disregarded or discounted the rationale and context underlying the cases. My co-authors and I sent multiple letters to the Reporters urging them to pay more attention to the legal reasoning of the cases rather than merely counting the holdings. Our concerns were not addressed substantively; rather the Reporters’ response was to downplay express references to the “counting” methodology and relegate discussions about empirical methodology to the Reporter’s Notes. Yet, the change was cosmetic as the influence of the case counting method on the draft Restatement remains strong. The draft Restatement extracts rules from cases without context or judgment. It is most notable in Section 2, which replaces assent with notice, and Section 4, which seems to be an attempt to save contracts from being found illusory where the business has broad discretionary rights. Illustration 2 of Section 4 states that a clause which gives the business “the right to modify, revoke, suspend, terminate or change any or all terms of the contract, in whole or in part….is enforceable, but the business must exercise its powers under this clause in good faith.” How can there be a contract when the business is bound by nothing save its own ill-defined “good faith”? This is a flagrant misunderstanding of existing case law. Good faith in the performance of contracts is required but there has to first be a contract, and where one party can terminate at any time for any reason, that party’s promises are illusory, there is no consideration and thus, there is no contract.

    Given our collective knowledge of the cases, we had our doubts about the way the data was being used. Despite claims that case counting was used merely to provide context, we suspected numbers were being used to distort and mislead. For example, many cases that permitted unilateral modifications involved credit card agreements (which are subject to federal and state legislation and so don’t raise some of the same concerns as other consumer contracts), or relational service contracts which require more flexibility. Yet, the Reporters blithely state that a “’consumer contract’ is defined by the type of parties that enter it, not by the subject matter that it governs.” (§1, Cmt. 8). In other words, they do not distinguish privacy policies, website terms of service, credit card agreements, and one-time purchases even if there are reasons to do so. They also do not distinguish between terms presented on paper, on a website or on a phone screen even though the form (and format) of the terms affects consumers’ perception of them. A 50-page document handed to a consumer at a check-out counter is perceived differently than a 50-page document being presented on a website which is available only through a hyperlink which is placed next to an “Agree” click button. Not surprisingly, as a study conducted by law professor and ALI member Colin Marks has shown ( https://digitalcommons.pepperdine.edu/cgi/viewcontent.cgi?article=2456&context=plr), the same retailer will have more onerous terms for its customers who purchase from its website than for its customers who make the same purchase in-store. To the Reporters, however, all consumer contracts are the same. This is a blatant disregard of contracting reality, and one that harms consumers.

    The study conducted by Gregory Klass gave us additional cause for concern and prompted us to meet the Reporters on their own turf. Rather than criticizing the draft Restatement of Consumer Contracts for what it was not, we decided to evaluate it for what it was. We did what the Reporters did – counted cases – essentially using their tools and “checking their math.” As our article explains, we did not get the same results. Even by its own terms, the Draft Restatement fails.

    But I completely agree with Professor Gillette that “(a)n exercise that relied solely on counting cases based on bottom line holdings would likely miss the pertinent ‘churns cases’ and thus do a disservice to the very project the Reporters have been asked to undertake.” Unfortunately, that is the exercise engaged in by the Reporters, and it is one that we opposed from the beginning. A Restatement should not rationalize bad cases; it should try to understand courts’ reasoning in those cases given the facts and the context in which the cases arose. This Restatement, however, in the words of the great Contracts scholar Melvin Eisenberg, drives “a dagger through consumer’s rights.”

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