The law and sociology of boilerplate.

Author:Rakoff, Todd D.
Position:Response to article by Lucian Bebchuk and Richard Posner in this issue, p. 827 - Boilerplate: Foundations of Market Contracts Symposium
 
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In my view, the scholarship presented at this symposium demonstrates that, in order to analyze form contracts and boilerplate successfully, one must carry out a set of operations that embodies an approach I will call law and sociology. But I presume I was invited to be a commentator at this conference on boilerplate not because the article I wrote on one branch of the subject awhile back exemplified this methodological approach, but because it took a rather strong substantive position. (1) And so I think I ought first to say a brief word about that.

The article in question concerned contracts of adhesion in, roughly speaking, the consumer context, (2) and the position I took was that what I called the "invisible" terms of those contracts--the large number of terms not disciplined by the actual bargaining or shopping behavior of consumers even in price-competitive markets--ought to be treated by the law as presumptively unenforceable. The burden should be put on drafting firms to show their form terms were worth judicial enforcement rather than on adherents to the forms to show the terms were unconscionable; and if this burden were not met, the courts should apply the general, legally implied default terms instead of the drafter's terms. This was not then, and is not now, the law, but I would not be candid if I did not say that I still think that, as regards the domain I was addressing, I was right.

In particular, I am not persuaded by the article presented at this symposium that seems to me most directly to challenge my thesis (although by no means aimed at me personally): Lucian Bebchuk and Richard Posner's One-Sided Contracts in Competitive Consumer Markets. (3) As I understand it, Bebchuk and Posner assert that what appear to be "one-sided" consumer contracts in fact function to allow firms, concerned about their reputations, to satisfy those consumers who have worthy complaints while resisting other customers who present complaints that are overblown or unjustified. Since this may be to the benefit of most consumers, the existence of these one-sided contracts does not show that consumers do not understand what they are agreeing to. In such circumstances, Bebchuk and Posner say, the "courts would do well to take a hard line in enforcing the terms of one-sided consumer contracts in the absence of evidence of fraud." (4) For if this is done, then in the shadow of the law where most cases will be decided, the one-sided terms of the form contracts will be counterbalanced by the other-sided nature of the market in reputation, in which sellers worry about their good name much more than consumers do theirs. Apparently, this approach is to apply without regard to how harsh the content of the form terms is, because the primary function of the form terms is to give firms the room they want in which to maneuver.

Without belaboring the issue, Bebchuk and Posner seem to me to do nothing to show that this combination of judicial enforcement and the reputational concerns of firms will produce systematically desirable results. There is no reason to think it will in any way lead firms to recognize voluntarily the supposed legitimate claims of decent consumers at a volume or a value that is congruent with, or even regularly near to, any known measure of a proper number--resembling, that is, either any known legal measure of harm or any known economic measure of an incentive for efficient behavior. They offer no model of how the market in reputation works, or of why the values it generates are responsive to anything other than firms' fears of how much reputational damage particular claimants are, for a myriad of possible reasons, in a position to cause. Nor do they consider whether the existing transaction costs of the legal system might allow firms to differentiate between merited and unmerited claims even if consumers are able to claim reasonable legal rights. Finally, on a somewhat different dimension, Bebchuk and Posner do not consider the impact on the individual liberty of consumers of a practice of giving firms (with the help of the proposed standard for legal enforcement) a blank check so blank that, when after-contracting disputes do arise, consumers are forced to be nothing more than supplicants.

Well, perhaps it is not surprising that I still think what I think. (5) I am not going to go on this way because I have already said in my prior article what I have to say. I would much rather try to address the much broader range of issues and much more varied set of situations raised by the rest of this collection of articles.

The articles presented at this symposium are remarkable for the intelligence with which they approach the problem of boilerplate, for the amount of work they represent (especially those based on empirical investigation), and for the variety of approaches taken and subjects addressed. It is too much to hope to find a unified conclusion that all the papers would support. But I do think there is a single thread that appears in the fabric of many of the papers that is worth teasing out. It is, as I have already suggested, a methodological thread, and the essence of it can be stated simply: in order to understand boilerplate and to determine the law's proper response to it, one must approach it by building a structural model of how it is produced and used that goes beyond the model assumed both in ordinary contract law and in much of the economic analysis of law as well. Or, more simply, what the articles reveal is the need for a sophisticated and differentiated law and sociology of boilerplate.

It is not a new idea that legal rules can only be evaluated when viewed as constituent parts of a working social system. Indeed, built into the standard doctrinal treatment of ordinary (that is, non-boilerplate) contracts, one can already see an implicit institutional dynamic. We should support the regime of contracts, we are told, because the practice of making, relying on, performing, and enforcing contracts enhances welfare and enlarges freedom. While these asserted connections between contract and welfare and freedom are often treated as if they were in some sense "natural," they in fact rest on two structural constructs. They rest on an assumed form of the direct relationship between the parties, and on an assumed market in which the parties' relationship is embedded.

Viewed as a dyadic interaction, contracts are assumed to be the product of bargaining and mutual assent. Enforcing their terms presumptively enhances welfare because parties generally know what is good for them. When they trade quid pro quo, each party choosing what he is to get over what he is to give, each party comes out better off, and the same set of resources produces greater satisfaction overall. And enforcing the terms of contracts also presumptively enlarges freedom because each party chose to enter the arrangement. Taking someone's voluntary commitments seriously both dignifies his freedom and also enhances his opportunities for expressing that freedom.

Viewed now as part of a working social system, contracts are assumed to be the products of competition in the marketplace. Speaking systemically, enforcing the terms of contracts presumptively enhances welfare because competition establishes conditions under which the individual deals people make lead, as if guided by an invisible hand, to an efficient use of society's resources to satisfy wants. Enforcing contractual terms under these conditions also presumptively enhances freedom because competition among the participants on one side of the market (for instance, among employers or producers) creates, as much as possible, choice and an absence of duress for those on the other side (for instance, for workers or consumers).

Many rules of the general law of contracts reflect these assumptions in doctrinal form. The modern theory of consideration, which makes a promise presumptively worthy of enforcement merely because it was bargained for a return promise or performance, is one. (6) The refusal to treat general social circumstances as constituting duress, so long as a...

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