Contracts
Class Notes
More on boilerplate contracts
Say
you agree to buy something or make some kind of a deal. The merchant with whom you’re dealing has a
form and says: “Here’s where you sign”, and you sign. Then we start
with the approach that you’re bound
by what you agreed to. Even if you
didn’t read it, you ought to have known
that you were making a deal on the merchant’s (non-outrageous) terms.
But
that’s not the end of the story. Three
cases we looked at last time show that if the “contract” is more in the nature
of a “claim check”, we won’t hold the consumer to “surprise” terms.
Mundy v. Lumberman’s Mut. Cas. Co.
The
Mundys had a homeowners’ policy that covered silver. However, the insurance agent said their
renewal policy only covered $1,000 worth of loss of silver stuff. The Mundys sue. What’s the worst fact you have to deal with if
you’re the Mundys’ lawyer? Mr. Mundy is
a lawyer! He’s an assistant
D.A.!!! If anyone ought to pay
attention to writings, it’s a lawyer. He
would have a better chance of winning if he were a truck driver or otherwise
not as educated as he is. But this is
someone who ought to be skilled with words and skilled with reading pieces of
paper.
The
line most quoted from this decision is a quote from another case: “Even a
casual reading of the mailed material would have given the plaintiffs adequate
notice”. If you’re the insurance
company, you want to make clear enough in the writing you send the customer so
that anyone would get the message and thus be on notice. Then, whether they read it or not, you can
claim that they should have and could
have read and understood it.
Does
the change to $1,000 of coverage for silverware on the renewal policy change
the dickered deal significantly? It’s
not uncommon that an insurance plan doesn’t really insure. There are often deductibles or limitations on
large losses. Is there anything wrong
with that? No. That’s okay.
The only serious question is: What did the parties agree do? As policy, it’s okay because it allows people
to buy just the insurance they need at an affordable rate. The insurance company can do this, but the question is whether they actually did it. That
is, did the insured people get the
message?
How
does a renewal policy differ from the original policy? When, as in this case, we have a renewal
policy which changes the rules on the insured, the insurer has a burden of flagging the changes and putting the
insured on notice that the rules have
changed. Breyer thinks that it was
adequately done in this case such that even a casual reading would have conveyed adequate notice.
Weisz v.
Parke-Bernet Galleries, Inc.
Weisz
and the Schwartzes go to Parke-Bernet and they’re successful bidders on some “Raoul
Dufy” paintings. These were big-time
purchases. The paintings turned out to
be forgeries[1]. Weisz tried to get his money back from
Parke-Bernet. He was successful at the trial
court level, but they failed on appeal.
Why
did they succeed at trial? What did the trial
judge say? The catalog said that the
paintings were sold “as is”. Why shouldn’t
Dr. Weisz have read that and be bound by it?
Could the disclaimer have been made any more simple? On the other hand, doesn’t the “tonyness” and
general fanciness of the place implicitly warrant the authenticity of the
painting?
The
trial judge says that if you want to sell paintings “as is”, you have to really
rub your customers’ noses in it.
Parke-Bernet would just as soon not do it that way because it would be
sort of uncool and unchic.
What
does the appellate court say? Why do
they reverse and allow no recovery for Dr. Weisz and the Schwartzes? They point to the warranty in the
catalog. They also say that this is an
auction of old paintings, thus the painters aren’t around to ask whether they
really painted the paintings. The best
you can do is say: “We think the guy painted these paintings.” But nobody knows for sure!
There
are two ways to think about this case: (1) There was a flat out warranty that
these paintings were genuine, and then it was disclaimed. But the better argument for Parke-Bernet was:
(2) Of course they didn’t warrant they were genuine, and you, the buyer, should
have known that too. Everybody knows
there are a lot of forgeries going around and you can’t be absolutely certain
about anything. Even without the
condition of sale, it ought to be a case decided for Parke-Bernet because all
they promised was that there is some expert somewhere, who might be wrong, who
thinks the painting is authentic.
What
we have here is a case where the deal could have been anything the parties
wanted to make it. Parke-Bernet could have
made a deal such that they absolutely won’t be responsible if they’re
fakes. That’s an okay deal. But what deal did the parties actually make?
Look
at the additional facts. Think about how
high the prices were. Both purchasers
fancied themselves as serious collectors who both hired their own experts to
look at the paintings before they bid.
This tells us that there is a certain amount of risk involved in
collecting art. The bargain is: They
look genuine and the expert thinks they’re genuine, but there are fakers out
there and they might be fakes, in which case we, the gallery, aren’t
responsible.
If
we’re talking about objective mutual assent, there is no question that
Parke-Bernet intended not to be held responsible for forgeries. If the bidders believed that Parke-Bernet did intend to be held responsible, then
we have to see which party’s interpretation is more reasonable.
Karl Llewellyn on
boilerplate form agreements
This
was a vexing problem in his time and it remains a vexing problem. You have actual,
subjective meeting of the minds on
the dickered terms in most cases. Then
there will be a non-specific, blanket
assent to deal on the seller’s rules because the buyer signs the seller’s
form. The deal is on the seller’s rules,
but not outrageous rules. Nothing that’s oppressive, unconscionable, or
contrary to public policy will be allowed.
The seller also won’t be allowed to go way out of line from the dickered
deal.
Check
out § 211 of the Second Restatement. You’ll
find that the comments to this section track Llewellyn’s comments pretty
closely. This section tries to do pretty
much what he suggested.
However,
not everyone agrees with Llewellyn.
Rakoff thought that contracts of adhesion ought to be presumed unenforceable. The considerable weight of scholarly opinion
is “No, we ought to treat the boilerplate as presumptively unenforceable and
have the judge make the contract.” Which
approach do we favor? When the revisions
to Article 2 were being made, the academic view didn’t carry the day, and the
new Article 2, like virtually all courts, will pay attention to the terms in
the writing. Is that wrong?
One
way to think about the question is: do you want your contracts made by your
seller, a profit-oriented organization, or do you want them made by a judge,
interested in fairness and decency? One problem
with the “fairness approach” is that you’d have to litigate “standard” contract
terms frequently, at least at first. You
can’t simply read the writing and plug in what’s there. What’s another problem? Sellers will compensate by charging consumers
more.
If
you buy into economics, you will find that the sellers maximize profit by
giving customers what they want. If
buyers want different provisions, the sellers will have an incentive to provide
them and thus make more money. Why do
merchants provide the provisions that they do that limit liability? They think that most consumers want that
because it lets the seller sell at a lower price. If the judge makes the contract, he has no
similar economic incentive. He would
want everything very “upscale”, with everything that goes wrong compensated.
What
does this case have to add? This is a
case of “deal now, terms later”. What we
were talking about in Mundy is “deal
now, terms now too”. The consumer had a
chance to look at the piece of paper and see what they were getting into
beforehand.
Easterbrook
calls this a situation of “money now, terms later”, and he says there’s nothing
wrong with that, which is a controversial stance.
In Zeidenberg,
the transaction takes place in a store.
He pulls a package off the shelf.
The package is designed to be informative and eye-catching. It’s probably a supermarket-style store where
he takes his purchase to the counter and pays for it and then walks away. Has a contract been formed at that point?
Hill v.
Gateway 2000, Inc.
In
this case, it’s not face-to-face, but rather done by mail order. The Hills negotiate a deal over the
phone. Inside the computer box, there is
a notice with an arbitration clause.
When was the contract formed there?
In
both situations, Easterbrook notes that a license pops up when you start using
the software (Zeidenberg) or you see a license inside
the packing box (Hill). Easterbrook makes the terms inside the box
part of the deal.
Zeidenberg
tried to argue that putting the product on the shelf is an offer that he
accepts by taking the product off the shelf, paying for it, and walking
out. If that’s the case, there’s no
license restriction on Zeidenberg’s use of the software, because he didn’t know
of any such restriction before the contract was formed.
The
Hills would argue that they didn’t know about the arbitration clause at the
time they purchased the computer.
The
big questions are: (1) When was the contract formed? (2) What are the terms of that contract?
It
seems that contracts ought to be formed early on. Why is it that the terms of them ought to
include terms that come later, after contract formation? How do you support the Easterbrook position
here? There are arguments that
acceptance occurred at the store in Zeidenberg
and over the phone in Hill.
This
is sometimes called a “rolling acceptance”.
One thing that will help this be enforceable is the opportunity to
return the goods within a certain amount of time.
What
does Article 2 have to say about this?
Not much that will help Easterbrook.
One approach in the Hill
situation is you have § 2-206. When
people call in to buy goods over the phone or electronically, they’re typically
forming a contract when they order. How
do we get terms later?
Another
approach is found in § 2-209, where you have a contract without these terms
originally, but then the contract is modified by agreement. The agreement comes when the consumer fails
to return the goods within 30 days.
The
Easterbrook opinions suggest that “cash now, terms later” is standard, garden
variety contract law stuff for which no new doctrine is needed. But what doctrine is being applied? What can we say about this kind of
situation? What’s the best argument you
can make in favor of the Easterbrook position?
Well, it’s a useful way to do a lot of business and it would be tiresome
at best and burdensome in many ways to have all the terms laid out at the time
of the deal because we’re dealing with complicated products. It would be difficult to get all the terms
out on the outside of the package and make everybody read a lot of stuff. There is a lot of utility in “deal now, terms
later”. How do we fit this into the
existing law? Without making people read
all the terms, you can flag the idea that the purchase is subject to some terms
which will follow later. You can make
the purchase subject to such-and-such terms to follow later.
Zeidenberg
probably knew exactly what he was doing in trying to cheat ProCD. The Hills probably didn’t know what was going
on.
Is
it unnecessary? Is it inappropriate? Compare to Parke-Bernet.