The Proposed Restatement of Consumer Contracts, if Adopted, Would Drive a Dagger Through Consumers’ Rights, by Melvin Eisenberg

by Guest Blogger — Wednesday, Mar. 20, 2019

The American Law Institute is considering the adoption of a Restatement of Consumer Contracts. (The present version of the proposed Restatement is Council Draft No. 5, and this article is based on that Draft.) The proposed Restatement is opposed by the Attorneys General of California, Delaware, the District of Columbia, Illinois, Iowa, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Pennsylvania, and Washington.[1]  This kind of official opposition to a proposed Restatement is unprecedented to my knowledge, and there is good reason for it. The proposed Restatement, if adopted, would drive a dagger through consumers’ rights. It is thoroughly and stridently anti-consumer and it conflicts with both contract law in general and the Restatement of Contacts in particular.[2]  This is true of virtually every Section of the Proposed Restatement, but due to space limitations I will focus on the very worst Sections, which concern assent and unconscionabiity.

Assent: Sections 1 and 2.  It is a fundamental principle of contract law that a party is only bound to terms to which the party assents. Under Sections 1 and 2 of the Proposed Restatement, however, a consumer is bound to terms to which he has not assented, that is, terms to which he has not given knowledgeable and meaningful agreement.

Section 1 defines a standard contract term to mean a term relating to a consumer contract that has been drafted by a party other than the consumer for use in multiple transactions between the business and consumers. Accordingly, a standard contract term, as defined in Section 1, is a term drafted or adopted by a business without any input by a consumer who, under the proposed Restatement, will nevertheless be bound by the term. (This type of term is conventionally called a form contract term although the Reporters have eschewed that terminology). Because businesses draft standard contract terms with no input from consumers those terms will either be neutral as between a business and a consumer (very rarely) or slanted in favor of the business (almost always).

Section 2 goes on to provide that a standard contract term, as defined, is adopted as part of a consumer contract if the consumer manifests assent to the transaction after having received (1) reasonable notice of the term and the intent to include the term as part of a consumer contract and (2) a reasonable opportunity to review the term (hereafter, the notice and opportunity-to-review requirements).

Although Section 2 refers to assent by a consumer it does not either require or mean actual assent, that is, knowing and actual agreement.  If Section 2 required actual assent it would not have employed the notice and opportunity-to-review requirements. In a true contractual transaction between A and B to which B knowingly and actually agrees, A is not required to show that B had reasonable notice of the contract’s terms and a reasonable opportunity to review them.  A must only show that B knowingly and actually agreed to the terms.  The obvious purpose of the notice and opportunity-to-review requirements is to bind a consumer to a contract’s form terms even if the consumer did not knowingly and actually agree to those terms, by substituting the notice and opportunity-to-review requirements for a requirement of true assent.

Furthermore, the notice and opportunity-to-review requirements are farcical, because consumers almost never take notice of or review  form contract terms. The reason is simple.  Form contract terms are normally obscure, legalistic, or both. These characteristics render the cost of reading form contract terms very high, and due to the legal obscurity of most such terms a consumer would usually not understand the terms even if he did read them. Moreover, it is common knowledge that businesses will seldom if ever agree to revise form contract terms at a consumer’s request.

Faced with terms that a consumer knows she will find difficult or impossible to understand and that typically aren’t subject to revision in any event, consumers will almost invariably decide to remain rationally ignorant of the terms.

The Reporters of the proposed Restatement do not disagree.  One of the Reporters, Omri Ben-Shahar, has correctly stated that “Real people don’t read standard form contracts. . . . And what if they did? Surely, there is nothing they can do about the bad stuff they know they will find. . . . Apart from an exotic individual here or there, nobody reads.” [3] Another Reporter, Florencia Marotta-Wurgler, along with two co-authors, examined the extent to which potential buyers of software read end-user license agreements (EULAs).  They tracked 48,154 visitors to the web pages of 90 software companies, and found that only one or two in 1000 shoppers accessed a products EULA for at least one second.[4]

Finally, Section 2 is inconsistent with Section 211(3) of the Restatement of Contracts. That Section provides that “Where [a party who has prepared a writing] has reason to believe that the party manifesting . . . assent [to the writing] would not do so if he knew that the writing contained a particular term, the term is not part of the agreement.” A counterpart to Section 211(3) should have been included in Section 2 of the Proposed Restatement in the interest of fairness and to conform the proposed Restatement of Consumer Contracts to the Restatement of Contracts.[5] There can be no reason for refusing to follow the Restatement of Contracts in this regard, except to allow businesses to include contract terms that injure consumers.

Unconscionability – Section 5. Section 5 of the Proposed Restatement provides that “a term is unconscionable if it is (1) substantively unconscionable, namely fundamentally unfair or unreasonably one-sided, and (2) procedurally unconscionable . . . .” Section 5(2) is undesirable as a matter of morality and fairness, because a term that is fundamentally unfair or unreasonably one-sided under Section 5(1) is unconscionable without regard to whether it is also procedurally unconscionable. Furthermore, Section 5(2) is inconsistent with the Restatement of Contracts.  Section 208 of that Restatement provides that “If a contract or a term thereof is unconscionable at the time the contract is made a court may refuse to enforce the contract or may enforce the remainder of the contract without the unconscionable term . . . .” Nothing in Section 208 requires a showing of procedural unconscionability to make a contract or term unconscionable. Further proof that substantive unconsionability renders a contract unconscionable under Restatement of Contracts Section 208 without a showing of procedural unconscionability is provided by Illustrations 1, 4, 5, and 6 to that Section, in which contracts that are substantively unconscionable are treated as unconscionable without a showing of procedural unconscionability.  Accordingly, Section 5(2) of the proposed Restatement of Consumer Contracts is not only undesirable in itself, but like Sections 1 and 2 takes away from consumers the rights they have under present law and conflicts with the  Restatement of Contracts.

Some cases support the position taken in Section 5(2), but many or most cases do not.  A number of cases hold that a contract is unconscionable if it is substantively unconscionable without requiring an additional showing of procedural unconscionability.  See, e.g., In Re Poly-America L.P., 262 S.W.3d 337, 348 (Tex. 2008) (“A contract is unenforceable if, ‘given the parties’ general commercial background and the commercial needs of the particular trade or case, the clause involved is so one-sided that it is unconscionable.’”). Other cases hold that contracts of adhesion are procedurally unconscionable, and because all or virtually all consumer contracts are contracts of adhesion this rule effectively eliminates any requirement of procedural unconscionability.  Still other cases directly reject the proposition that procedural unconscionability must be shown to establish unconscionability. See, e.g., Maxwell v. Fidelity Services, Inc., 907 P.2d 51, 58-59 (Ariz. 1995) (“a claim of unconscionabilty can be established with a showing of substantive unconscionability alone”).

Because of space limitations, I will not review the remaining provisions of the proposed Restatement of Consumer Contracts. Suffice to say that almost every provision of the proposed Restatement seriously disfavors consumers. The Proposed Restatement should not be adopted.

 

Melvin Eisenberg is the Jesse H. Choper Professor of Law (Emeritus) at the University of California, Berkeley.

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] The AGs were responding to Council Draft No. 3, but the essential terms of Council Drafts Nos. 3 and 5 are substantially the same.

[2] I don’t claim that the Reporters of the proposed Restatement are anti-consumer, but that is how their proposed Restatement comes out.

[3] Omri Ben-Shahar, The Myth of the Opportunity to Read in Contract Law, 1 European Review of Contemporary Law 1, 2 (2009).

[4] Florencia Marotta-Wurgler et al, Does Anyone Read the Fine Print? Consumer Attention to Standard Form Contracts, 43 J. Legal Studies 1 (2014).  See also an article by the third Reporter, Oren Bar-Gill, Seduction By Plastic, 98 Nw. L. Rev. 1373 (2004).

[5] A statement loosely to this effect may be included in the next version of the Comment, but Restatement Comments do not have the force of Restatement black letter and there is a reason why Section 211(3) is in the black letter of the Restatement of Contracts, not the Comment.

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

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