Rediscovering Subjectivity in Contracts: Adhesion and Unconscionability

• Author: Richard L. Barnes
• Position: Professor of Law
• Pages: 123-188

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Professor of Law and Leonard B. Melvin, Jr. Distinguished Lecturer in Law, University of Mississippi. B.A., J.D., 1976, 1979, University of Arizona; LL.M., 1983 Northwestern University. My thanks go to Michael Gorman, U of M Class of 2007, for his help finding materials to support the ideas presented here.

The doctrines of adhesion and unconscionability owe their existence to the power of the libertarian model of bargaining. The premise of this Article is that the concept of objectivity has made adhesion and unconscionability doctrines of convenience, helpful in fine tuning the powerful concept of objectivity in that libertarian model. The conclusion reached is that both of these limiting doctrines are a product of the objective theory and serve complementary purposes. This Article asserts that the purpose of the doctrines of adhesion and unconscionability is to save the objective theory of contracts from troublesome over breadth.

This Article begins with a description of the objective and subjective theories of contract enforceability. It will be shown that the traditional definition of contract as an objective bargain-in- fact¹ of the parties leaves too much to the imagination between the parties. Can individuals create a bargain for what is illegal? The libertarian answer would be yes, but the traditional objective doctrine hedges. Some well-recognized limitations will be elaborated to show that the presence of consideration in an objective exchange is not enough to ensure its validity.² Page 124

Illustration One

A highway robber waylaid a stage coach and killed the driver. He then said to the passengers: "Your valuables or your lives." When they complied there was no more than that, compliance. Notwithstanding the fact that there was language of choice, an objectively expressed exchange does not mean that there was a bargained for exchange.³

Adopting the form of an exchange should not be a privilege to commit a tort or a crime.⁴ Adhesion and unconscionability are useful, in part because they help us identify other instances of form over substance. Their vigor reduces tensions in the Law of Contracts which arise through the dominance of objectivity. We know there are times when we must lift the mask of formula used by the robber and other bad actors.

This Article will elaborate on the distinction between the objective and subjective models of contract.⁵ Next, a group of significant cases, all of which deal with the doctrines of adhesion and unconscionability as limitations on contract power, will be examined for traces of this unresolved conflict.

This Article proposes that there is great value in retaining some subjectivity as the basis for contract enforcement. One conventional area in which this subjectivity is used is in Page 125 misunderstandings which can only be discovered and resolved through subjectivity.⁶ This concededly radical proposition is made less so by limitations on it which will be introduced below.

Conventionality will be supported by two themes carried throughout this Article. The first is that adhesion and unconscionability are to formation what misunderstanding is to interpretation. They should be seen and used in a way that makes them akin to an interpretive gloss on the theory of objective formation. They should not be seen as an antithetical alternative to objectivity. No contest for supremacy will be played.

Second, by being forthright in our application of these modest interpretive devices we save the more manipulative devices which skirt formation, but still erode objectivity of meaning.⁷ Judges have demonstrated their desire for subjectivity. That desire is the reason that two major sources of contract law, the Uniform Commercial Code (UCC) and the Restatement Second of Contracts (Restatement), speak of unfair surprise as one concern in unconscionability. However, to do the real work we need to connect the unfairness with the lack of assent rather than the result. Some bargains should not be enforced even though their substance is acceptable. They should be rejected solely on the basis of their lack of fair bargaining. If a deal is created by power that presents only the appearance of genuine assent, then the interest of the law in protecting objectivity largely disappears. A lack of genuine assent makes these transactions more akin to robbery than contract. Page 126

Where the bargained-for-exchange is not genuine, we need to be able to say this in a forthright manner.⁸

These tools of adhesion and unconscionability remove some of the pressure from other doctrines and devices. While both require an examination of the circumstances and result of the objective bargain, their directness reduces the reliance on other doctrines which appear more conventional, more doctrinaire, but, in actuality, can be manipulative and result-oriented. Whether direct or manipulative, some inquiry into the bargain is hard to resist because of the over breadth of the objectivist approach. Both adhesion and unconscionability can reinforce objectivity. By making legitimacy of the bargain a frank issue, they can alleviate a glut of untenable decisions that would result from a purely objective system. They are conveniences, if not necessities, given the resiliency of the objective theory.⁹

What will emerge throughout this Article is an analytical approach that heightens our sensitivity about the assent of the parties by asking if we can separate assent to the transaction as a whole from the assent that implicitly attaches to the lesser included terms of the transaction. For this purpose it is helpful to look at the Page 127 assent as one of three types: (1) was the deal in the nature of a take-it-or-leave-it transaction because one of the parties was unwilling to bargain and was in a position to impose, (2) were the circumstances or process of the transaction such that no bargaining was expected, or (3) were the circumstances or process such that, despite bargaining over some terms, ignorance of other terms was the reasonable expectation of the parties. If it is concluded that one of these three patterns fits the transaction, the contract should be viewed as adhesive.

This does not mean the agreement should be unenforceable. Adhesive contracts are not unenforceable solely because of their adhesiveness. We can reinforce the objective theory of contracts and come to a fairer representation of the actual agreement if we enforce the deal, but refuse to enforce those terms which are unfair surprises or would result in unexpected harshness. Just to create a clear line from the outset, harsh is not the equivalent of unconscionable. It is assumed that the doctrine of unconscionability will remain as an alternative. Adhesion complements it by recognizing that some bargains should not be enforced because there is inadequate assent to what may be unfair or harsh terms. Inadequate assent does not mean that the resultant terms will necessarily be unconscionable. The essence of this analytical model is a constant quest for the reasonable expectations of the parties which requires interpretation, construction, and gap- filling.

I A Brief Overview of Objectivity and Subjectivity

Illustration Two

A clever and personable felon approaches a pensioner with a story. She is working her way through college selling a satellite-based Internet service. She hastens to add that she knows the pensioner is probably not interested, but she will get paid a twenty dollar fee if the pensioner will fill out and sign a form attesting to her visit, the positive impression she made, and the positive image of the company. He may still decline to purchase the service. The pensioner is charmed, reads the form, and signs it. The felon thanks the mark, the door is closed, and the felon walks away with the form. Later, in her expensive sports coupe, she peels off the upper layer of the paper to reveal a promissory note. It recites that pensioner made a purchase and is obligated to pay one thousand dollars.

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After collecting several of these, she discounts them to a good faith purchaser and leaves town with the cash.¹⁰

If we use the analytical tool above we quickly conclude that this is a case in which the failure of assent is so significant as to preclude a contract. It is as much a failure of assent as it is a robbery. Some courts recognize this lack of assent. Other courts have resisted even this modest infringement on objectivity. They have concluded that the agreement is enforceable, but because of the fraud, the terms are subject to reformation in appropriate cases.¹¹

Let us begin with an uncontroversial proposition: basic hornbook material. Modern commercial realities demand that the law largely abandon the subjective in favor of the objective.¹²

Whether this preference for the objective, reasonable expectations, over the subjective, the personal and peculiar, was the product of the industrial economy or helped to produce it is beyond this project.¹³ Either way there is little doubt that the objective conception of contracts occupies the field.¹⁴ In all fifty states, the Uniform Commercial Code provisions on sales of goods, which are an...