Danielle D’Onfro’s article Contract-Wrapped Property, provides a new lens to understand—and counter—sham consent in clickwrap and browse wrap agreements. Judicial treatment of constructive notice as assent in online agreements, of course, greatly benefits huge companies like Amazon, Google, and AT & T at the expense of everyone else, especially consumers.1 The big take away of Contract-Wrapped Property is that attorneys and judges unwittingly protect a long-prohibited type of property interest—equitable servitudes in chattels—when they enforce clauses limits on liability against downstream buyers that were not parties to the original contract. According to D’Onfro, these decisions endanger the very foundations of private ordering such as ownership itself and also could undermine product liability doctrine.
Contract-Wrapped Property makes a tremendous contribution to our understandings of private ordering. By exposing this threat to previously stable property doctrine and the policies behind it, D’Onfro’s article issues a wake-up call to how doctrinal developments in contracts can upset what she calls the “private law equilibrium” between contract, property, and tort law.
Readers who spend most of their time in contractual silos and barely remember equitable servitudes from the bar exam should rest assured that the article’s tour through property law is worth the effort. The article offers new tools to police the reach of online form contracts. Better still, D’Onfro offers a fix, at least regarding contracts for chattel. Courts, she contends, should refuse to enforce arbitration and other restrictive clauses against remote buyers on the grounds that these provisions impermissibly impose equitable servitudes on chattels. In the alternative, legislatures should regulate this radical derogation of common law and refuse to enforce contract clauses against remote buyers unless the original seller that wrote the contract provided actual notice of those terms to downstream buyers that lack privity with the initial seller.
Contract-Wrapped Property covers a lot of ground in seventy-five pages, so this jot focuses on two points after describing the equitable servitude problem. The first—a policy against secret liens—matters for those of us who toil in the fields of secured transactions and bankruptcy. The second—the waste created by equitable servitudes—is relevant to anyone concerned about the climate crisis.
1. The Pathology of Equitable Servitudes: Tamko Shingles
Tamko, a roof shingle manufacturer, has successfully enforced shrink-wrap terms against remote buyers even though only the first buyer—often a builder—saw the terms. D’Onfro describes a line of cases in which remote buyers have been held to Tamko’s terms such as arbitration, warranty limits, and—most surprising—requiring the loser to pay attorneys fees. (Pp. 1060, 1096.) Though parties litigated and judges decided these cases under contract doctrines, D’Onfro contends, the cases create “de facto equitable servitudes” on the shingles. That trend does indirectly what property law forbids directly by the ban on equitable servitudes on personal property. (Some courts, D’Onfro notes, have declined to enforce downstream Tamko’s terms against homeowners who don’t know about the original contract.)
Contract-Wrapped Property explains in detail why property law has banned servitudes on chattels, including the dangers of past owners controlling present uses of property, and clarity in what owners can and cannot do with their property. A case highlighted in the article—Juarez v. Ward—provides a rare example of a court openly acknowledging its imposition of an equitable servitude in an Oscar statue. When David Ward won the Oscar for his work on the movie The Sting, he signed an agreement with The Academy of Motion Picture Arts & Sciences giving the Academy a right of first refusal to buy the statue back for $10 before he sold or otherwise transferred it. After his housekeeper won a suit against him for unpaid wages, the Academy successfully prevented her from selling the statue to satisfy the judgment based on what the court recognized as the “unusual” situation in which a “reasonable restriction on alienation” protected the “prestige” of the Oscar. (Pp. 1104-05.)
A. Secret Liens
While D’Onfro applauds the Juarez court’s recognition that it was departing from the general prohibition on equitable servitudes on chattel, she nevertheless critiques the outcome as undermining the policy against secret liens that runs through UCC Art. 9 and bankruptcy law.
Often, concerns about debtor fraud underlie the refusal to enforce secret liens. For example, notice requirements such as recording interests in real estate or filing UCC-1 financing statements prevent debtors from secretly encumbering their property with multiple creditors who do not know about each other. To prevent that kind of fraud—and increase certainty of who gets what and the efficiency of the determination—bankruptcy trustees likewise enjoy priority over unrecorded interests in property.
We got to the present situation where equitable servitudes on chattel are rising from the dead via what D’Onfro and other commentators call “software exceptionalism” (P. 1072) that allowed doctrinal developments in transactions involving software to depart from traditional rules of contract and property law. Consider casebooks. Our students can sell their hard-copy casebooks to remote buyers, and indeed do. But digital versions of the casebook and any associated online features come larded with limits on use, resale and alteration. On a much larger scale, manufacturers “brick” electronic devices with software updates, which maximizes manufacturer profits and exacerbates the trash problem by requiring consumers to throw away instead of fix devices. (P. 1076.)
Software is part of many chattels: cars, stoves, and business equipment just for starters. D’Onfro points out that the doctrinal trend of allowing a manufacturer to unilaterally modify terms and enforce those changes against downstream owners who never knew about the initial sale contract leaves owners—and their creditors—in the dark about what ownership actually includes. Worse, D’Onfro asserts, servitudes “are creeping into chattels without a software hook,” (P. 1075) such as the Tamko shingles.
B. Waste
In addition to increased information costs, and subscription agreements that can greatly increase consumer expenses, equitable servitudes in chattel cause both economic and physical waste (aka trash). (P. 1074-75.) This tendency of equitable servitudes to compound the mess of overflowing landfills and plastic-choked waterways may be D’Onfro’s most innovative insight as she calls out this trend toward owners and creditors not knowing “which sticks in the bundle of rights they hold” because “another party has the right to rearrange the sticks.” (P. 1088.)
Contract-Wrapped Property identifies the high stakes of this seemingly technical matter of how far equitable servitudes reach: “In an age of climate disaster, it is morally abhorrent that the law may bind purchasers to landfilling usable goods and their recyclable materials.” (P. 1075.) For example, manufacturers of smart homes, toasters, and tractors have “bricked” old devices to hinder secondary markets. Not incidentally, that practice makes consumers chuck the old devices and buy new ones, creating ever-expanding piles of trash. (P. 1115 n.412.) An additional level of waste that D’Onfro identifies is that “every new object produced exacts a toll from the environment via energy, water, and raw materials.” (P. 1116.)
Property and contract law have long sought to prevent economic as well as physical waste. As an example, D’Onfro offers the Missouri case Eyerman v. Mercantile Trust Co.2 in which the court refused to enforce a provision of a woman’s will that required the executor to burn down her house. (P. 1116.) More typical situations are the increasingly vibrant markets for thrifting, recycling, upcycling and scrap operations. In clothing alone, brick and mortar operations such as Value Village thrive alongside online clearinghouses such as PoshMark, ThreadUp, and The Real Real. Sellers such as Ikea, Patagonia, and Eileen Fisher are getting into the action by operating websites that sell their own used goods.
Those markets are hobbled if an equitable servitude prevents resale or repair of a good. For example, D’Onfro critiques the restrictive licenses that come with many complex consumer goods that forbid repair except by manufacturer-authorized professionals. (P. 2024.) Contract and property law can and should do better.
2. The Fix: Enforce Old Bar on Equitable Servitudes in Chattel
Contract-Wrapped Property concludes with a proposed fix to the problem of contract creep into property law via de facto equitable servitudes. The “best path” according to D’Onfro, is to dust off the old ban on equitable servitudes on chattels. (P. 2024.) That way remote purchasers of houses shingled by faulty Tamko shingles would retain their rights, as would buyers who want to repair phones or laptops or upcycle an old fan to a new purpose.
Second best, however, would be to have legislators, rather than courts, address this new doctrinal development. D’Onfro’s proposal makes sense in light of courts’ traditional caution about changing long-standing common law doctrines. The legislation she proposes would require actual notice of the servitude travel to remote buyers, making constructive notice inadequate. In the case of Tamko shingles, the terms would have to be durably inscribed on the shingles themselves to bind remote purchasers. Even then, D’Onfro would limit enforceability on the same grounds as servitudes that run with land: irrationality, unconscionability, and restrictions on trade. (P. 1128.)
Among the most exciting elements of Contract-Wrapped Property is D’Onfro’s proposal that seems to urge the law students who become judicial clerks to help litigators and judges recognize the seismic changes to property law involved when courts enforce contractual limits on downstream buyers of goods. Judges that enforce contractual provisions against downstream buyers, D’Onfro asserts, should at a minimum “include some cabining language…to make clear that the court is not opining about servitudes.” (P. 1111.) That call to action reflects the best of what a law review article can achieve: shed light on an important problem in law; provide both ideal and pragmatic solutions; and give every day legal actors like litigants, judges, law students, and judicial clerks the tools to do some good.
- See e.g., Fagerstrom v. Amazon, 141 F.Supp.3d 1051 (WD Wash. 2015); Feldman v. Google, 513 F.Supp.2d 229 (ED Penn 2007); AT & T v. Concepcion, 563 U.S. 333 (2011).
- 524 S.W.2d 210 (Mo. Ct. App. 1975).
