What if Producers Paid Us to Read Fine Print?

Jan 13, 2025 Daniel BarnhizerAdd a Comment

Daniel Barnhizer

One of my favorite cases from the perspective of consumer bargaining power is Boucher v. Riner,¹ which involved both my third-greatest physical fear (jumping out of a perfectly good flying airplane a few thousand feet above the ground) and my first-greatest jurisprudential concept (what is ‘assent,’ really, in the context of consumer contracts). The case involved a contract between a consumer who for some reason wanted to jump out of a perfectly good airplane in flight…because reasons, and a producer who apparently really believed in providing consumers with meaningful choices in a standard-form contracting paradigm.

Specifically, the standard-form contract in Boucher provided the consumer with two options regarding exculpation of the people who were offering the consumer the opportunity to jump out of that perfectly good airplane – (1) pay the standard base price and release the producer from liability for its own negligence or (2) pay an additional $300 (presumably with which the producer would purchase insurance against personal injury) and retain the right to sue the producer for injuries resulting from the producer’s negligence. Notably, the standard form contract presented these options in menu form, and the consumer was free to choose either option. The Boucher case is important because of the efforts of the producer to make the options regarding the exculpatory clause salient for the consumer. Nothing makes things salient like paying money for a choice.

Prof. Williams’ article takes this concept further with a nuanced analysis of the normative need for selective assent² in consumer contracts as well as examining possible regulatory responses for “market testing” boilerplate clauses. Specifically, the Boucher case epitomizes the ideal situation proposed by Prof. Williams, namely that producers should make boilerplate terms in standardized consumer contracts with consumers salient in a manner that would allow the market to accurately price those terms. While this thought experiment has been attempted in the past,³ Prof. Williams examines the economic, legal, and regulatory realities of such attempts at pricing selective assent to standard terms at a sophisticated level that recognizes both the potential benefits and pitfalls involved.

Beginning with the observation that consumers virtually never read the boilerplate terms in standard form because those terms are not salient to the consumer, Prof. Williams argues in favor of a regulatory scheme under the Federal Trade Commission that would identify potentially problematic contract terms and require producers to give consumers the opportunity to opt-out of those terms for a price. (P. 232.)Specifically, Prof. Williams identifies four categories of contract terms that are potentially problematic from a consumer perspective: (1) “terms that seek to alter the operation of the legal system and the rights it usually provides consumers”; (2) “terms that allow the business to change the terms of the contract at any time, without the specific consent of the consumer”; (3) terms imposing unexpected costs on the consumer; and (4) “terms that purport to limit personal liberties in unexpected ways.” (P. 247.) Prof. Williams’ categories cover what I would consider to be the usual suspects in any lineup of arguably anti-consumer terms.

However, it must be stressed that the article only identifies these terms as potentially problematic. Instead of arguing that such terms should be banned outright, Prof. Williams notes that many contracting platforms such as airline travel websites, Amazon.com, and Walmart have already implemented “choice infrastructure” that allows customers to “customize their experience, choosing different elements of a product or service, seeing the individual price of each element, and arriving at a total package and price that fits the consumer’s budget.” (Pp. 258-60.) Under Prof. Williams’ proposal, FTC regulation of the four categories of problematic terms would require producers wishing to include such terms in their contracts to implement their own choice infrastructure that would permit the consumer to accept the producer’s base (presumably lower) price for a contract containing those terms or opt out of those terms for an increased contract price.

Such a regulatory scheme would require significant adjustments in contracting behavior by producers. Notably, Prof. Williams admits that the FTC would have to engage in some policing of the prices producers attach to each opt-out option “so that firms do not use pricing to unduly discourage consumers from opting out.” (P. 236.) I believe such regulatory policing of prices for individual contract terms is the most significant challenge to Prof. Williams’ proposal. Among other reasons, government agencies such as the FTC lack sufficient information regarding the potentially millions of different standard form contract terms as well as market information that would be necessary to both set a price for each term and permit timely adjustments to those prices with changes in market conditions. Prof. Williams recognizes this concern and suggests initially that producers should initially offer the opt-out options without prices and “wrap the expected cost of consumer opt-out into their total price….” (P. 266.) By identifying the terms consumers consistently accept or reject, producers could then develop information regarding pricing those terms or even whether to keep them at all.

Overall, this article makes an important contribution to the literature regarding consumer assent to standard form contract terms. Menu pricing of contract terms is theoretically easy in an online context, and yet, other than in rare cases like Boucher, it is unusual to see producers providing options to opt out of boilerplate terms. Such options, however, could yield valuable price information regarding the benefits or drawbacks of specific standard terms within a competitive market while at the same time providing consumers with the ability to customize their contract obligations. Although Prof. Williams’ proposal would likely be costly to implement in its initial stages, it suggests a potential solution to the difficult problem of consumer assent to non-salient terms in standard-form contracts.

1. 514 A.2d 485 (Md. Ct. Spec. App., 1986) (Boucher), abrogated on other grounds, Wolf v. Ford, 644 A.2d 522 (Md. 1994) (adopting a totality of the circumstances test for determining whether exculpatory agreements affect a public interest and rejecting the six-factor test of Tunkl v. Regents of the Univ. of Calif., 383 P.2d 441 (Cal. 1963)).
2. See Daniel D. Barnhizer, Reassessing Assent-based Critiques of Adhesion Contracts, in Comparative Contract Law 170, 177-183 (Larry A. DiMatteo & Martin Hogg eds., 2016) (analyzing the concepts of selective and particularized assent in consumer contracts).
3. See, e.g., Margaret Jane Radin, Humans, Computers, and Binding Commitment, 75 Ind. L.J. 1125, 1150-51).

Consumer Contracts Have Many Problems, but “Readability” May Not Be One

Nov 18, 2024 Shawn BayernAdd a Comment

Shawn Bayern

Probably all law professors, even textualists, have experienced frustrations with overly rigid applications of supposed rules about language. For example, they’ve encountered editors who require that all contractions be spelled out or replace every instance of the word “like” with “such as” regardless of whether the substitution makes sense in context. Editing like that serves formalistic assumptions about the readability and professionalism of text and usually rests on various “myths” or outdated conceptions about language. Similarly, many professors, even formalists, have encountered and been frustrated by institutional “metrics” that reduce rich, substantive endeavors (like education) to rigid and formalistic abstractions (“learning outcomes” or test scores).

In a critique at least broadly sensitive to the same kinds of frustrations, Yonathan Arbel’s recent draft article, The Readability of Contracts: Big Data Analysis, studies the Plain Language Movement, which has influenced language in such documents as consumer contracts and medical disclosures. Professor Arbel’s legal focus in the draft is on consumer contracts, and his point is not, of course, that language in consumer contracts should be unreadable. Instead, it is a sharp critique—backed both with analytical insight and with significant data—against formalized metrics of notions like readability.

A significant portion of the article critiques such metrics, like the famous Flesch-Kincaid scores that depend on such simple features of language as syllables per word and words per sentence. In a world with large language models, those simple metrics appear almost quaint; they are not unlike early attempts at the computational processing of natural language that mostly went nowhere until machine-learning systems, backed with massive amounts of data, replaced them. Arbel’s critique is deeper, though; he takes aim at the “conceit” that “formal aspects of the text are reliable indicators of its ‘readability’” (P. 8), noting that readability scores aren’t even internally consistent and that they rest on arbitrary decisions. More directly relevant to scholars of contract law, he uses earlier studies to highlight a conceptual distinction between superficial perceptions of whether text is “understandable” and deeper measures of comprehension, like “behavioral responses to contract breach.” (P. 12.) In other words, while it ought to be clear that whether a form contract is readable probably has little to do with the prevalence of polysyllabic words in its text, metrics in the first place may be problematic because they miss the point, may be manipulated, and target the average reader rather than individuals who may need more protection.

Indeed, while Arbel hearteningly highlights some evidence that “average” Americans are more literate than people give them credit for, he is sensitive throughout the article to the notion that practical comprehension is “heterogeneous.” (P. 16.) Consumers, for example, grow up speaking different languages and are neurodiverse. Some are more vulnerable than others to deceptive practices that the law properly aims to restrict.

Having laid this groundwork, Arbel’s empirical study (of millions of consumer contracts and other documents) finds that consumer contracts aren’t—using formal metrics—harder to read than other common sources of text that people encounter (news websites, Wikipedia, and so on). In view of this conclusion, Arbel suggests that reforms that address problems in consumer contracting “may need to be more ambitious than mere copyediting of contractual text.” (P. 37.)

Apart from its specific strengths, Arbel’s draft is perhaps a helpful general reminder that—and these are my words rather than his—legal commentators may be paying far too much attention to language in the first place and not enough attention to substantive features of the situations that law aims to regulate. Like most other social activities, the law is not language. That is, it is not coextensive with the language that represents its decisions, which are only imperfectly captured by words. Obsession with language and its form has clouded many fields, including contract law, and diverted effort from potentially more important reforms.

Arbel’s point in the current draft is not to lay out those reforms in detail. But just like the general suggestion I’ve just made, the draft makes a specific suggestion to shift focus away from form and text in the context of consumer contracts (including most notions of “readability,” particularly formalized ones) and instead toward substance, individual differences among consumers (specifically with more attention to “vulnerable individuals”), and better understandings of the potential market failures associated with consumer contracts. It’s worth quoting Arbel in full on this general point:

For instance, the resources devoted to simplifying contract language could have been directed towards addressing more fundamental issues in consumer markets, such as improving market competition to give consumers more meaningful choices; addressing information asymmetries through targeted disclosure requirements; strengthening enforcement mechanisms against unfair or deceptive practices; or removing regulatory barriers to entry to markets. (P. 42.)

That language is plain enough.

Hearing It in Your Own Voice: Audio Deepfake as a Marketing Technique

Oct 16, 2024 Eyal ZamirAdd a Comment

Eyal Zamir

The reviewed article describes an experiment in which an audio chatbot was either imbued with a random voice or with a clone of the participant’s voice, and the participant was either informed or not informed that they were communicating with a bot. It found that people tended to trust the bot more when it imitated their voice and that this effect was not influenced by whether or not participants were informed that their partner was a bot. While the article does not discuss any legal questions, it is submitted that it carries interesting implications for consumer law and regulation.

In recent decades, thousands of behavioral studies have documented numerous systematic and substantial deviations from the assumptions of economic rationality (Zamir & Teichman 2018). A very influential strand of scholarship has called for the use of behavioral insights not only to better understand deficiencies in human judgment and decision-making, but also as a means to mitigate those deficiencies through nudges—“low-cost, choice-preserving, behaviorally informed approaches to regulatory problems” (Sunstein 2014). While effective in some contexts, it has been persuasively argued that nudges are unlikely to be effective in business-to-consumer relationships, where firms are both able and motivated to undo their effect (Willis 2013). In fact, firms are quicker and more effective than legal policymakers at taking advantage of consumer heuristics and biases for their own interests. Unlike nudges, which aim to improve decision-making for the benefit of the decision-maker or society at large, sludges aim to benefit the entities that employ them. The proliferation of online transactions, the spread of personalized marketing techniques, and advancements in AI technology provide marketers with new opportunities to exploit consumer heuristics—and pose new challenges for legal policymakers.

Specifically, a large portion of customers’ interactions with firms—prior to purchasing the product or service, during the contracting process, and throughout the contractual relations—are no longer conducted with human beings, but rather with chatbots. While currently most of these interactions are in writing, it is expected that with the advancement of AI models and other technologies, more and more interactions will take place via oral conversations. From the perspective of the firms, the effectiveness of such communication depends on the extent to which customers trust the honesty and reliability of the entity with which they communicate. Firms may enhance customers’ trust in the chatbots by ensuring that the information they provide and the commitments they make are truthful and reliable. However, they can also promote this goal by shaping other aspects of the interaction, such as manipulating cues that unconsciously enhance people’s trust. In particular, they may utilize the similarity attraction, namely the attraction people feel to others who are perceived as similar to themselves in some personal dimension.

In their thought-provoking paper (forthcoming in Management Science), Scott Schanke, Gordon Burtch, and Gautam Ray report the results of an experiment designed to examine how the use of a voice clone enhances consumer trust. The participants in the online experiment—native English speakers from North America—were invited to take part in a Trust Game, a well-known paradigm in experimental economics.

In the basic form of the trust game, one player (A) is given a sum of money and can choose to send some, all, or none of it to the other player (B). The amount sent is then multiplied (usually tripled), and B decides how much of the multiplied amount to return to A. If both players are rational maximizers in the economic sense, that is, if each one of them cares only about their own self-interest, then A would assume that B would return nothing, and would therefore send nothing to B. However, if A and B could trust each other, they would both be better off by A sending the entire amount allocated to them, and B splitting the multiplied amount with A. Indeed, contrary to the prediction of standard economic analysis, experiments show that very often, A does send a considerable portion of the money to B, who then reciprocates by sending back an amount that exceeds what A initially sent (Berg et al. 1995).

In the version of the game used by Schanke and his colleagues, A could either send nothing—i.e., keeping an endowment of $1.25 to themselves—or send the entire endowment to B. B could then either keep the money to themselves—in which case they would get $3.50 (the multiplied amount) and A nothing—or roll a dice. If B rolls the dice and the resulting number is 1, A receives nothing and B receives $2.50. If the resulting number is 2, 3, 4, 5, or 6, A receives $3.50 and B $2.50.

All the participants in the experiment were assigned to the role of A. Before deciding whether to send the money to B, they received an oral message, ostensibly from player B, trying to convince them to send the money. Before playing the game, the participants were asked to call a 1-800 number and read a consent statement. This enabled the experimenters to generate a message using a clone of the participant’s own voice (footnote 12 of the article provides a link to a website where one can listen to a sample of the recorded messages.).

The participants were randomly assigned to one of four experimental conditions, in a 2 X 2 factorial design: Half of them were told that they had been paired with another player and half with an AI autonomous agent. Then, half of them heard the oral message from player B in a randomly depicted voice, while the other half heard a message that was generated using their own voice.

The key results of this neatly executed experiment were that using a voice clone significantly increased participants’ inclination to trust player B (that is, to send them the money), while informing the participants that they are paired with an autonomous agent, rather than a human being, had no discernable effect on their decision.

Such stylized experiments inevitably raise concerns about their external validity and the generalizability of their finding, and one should be careful not to draw far-reaching conclusions from a single study. Nevertheless, the results of the study make one wonder about the ramifications of the use of such manipulations by marketers. Large tech firms already have access to very large amounts of people’s voice samples, such information is tradeable, and is already used for various commercial purposes (Turow 2021). So, there is every reason to believe that the studied manipulation is not a mere fantasy.

Compared to more worrying online manipulations (AKA dark patterns; see Luguri & Strahilevitz 2021), imbuing chatbots with the customer’s voice does not seem overly troubling. Indeed, it is unclear whether, even in legal systems that protect consumers from large firms more effectively than US law, it warrants a regulatory response. There appears to be no sufficient ground to prohibit such practices altogether. As for disclosure duties, these are generally ineffective (Ben-Shahar & Schneider 2014; Zamir & Ayres 2020, pp. 284–302), and the results of the current experiment suggest that they are ineffective in the present context, as well.

Note, however, that in the experiment, the disclosure was about the partner being a bot—not about its imitation of the participant’s voice. Disclosing this fact might have made a difference. Regardless, contracting parties should have a free-standing right to receive significant information—such as knowing that they are interacting with a bot that imitates their own voice—even if this information does not affect their behavior. At the very least, realizing that the firm is willing to use various manipulations to gain their trust, such disclosure may put customers on guard.

To be sure, voice cloning can be used for both manipulative and valuable purposes. However, the potential harms of such manipulations are likely to extend beyond the market, potentially affecting the political sphere as well. Therefore, it is important to pay attention to these risks.

The Case Against Static Contract Remedies

Aug 12, 2024 Robert HillmanAdd a Comment

Robert Hillman

Professors Krawiec and Oman’s insightful new article caught my eye, having myself challenged various contract remedial rules in my research and writing over the years.  The title of the Professors’ article made me wonder, however, whether the authors can convince readers that the seemingly inviolate rule against specific performance of personal service contracts should be overturned.  But it turns out that the call for specific performance in the article actually applies to a quite limited set of personal service contracts, with the rule against specific performance still governing most such contracts.  Despite the title, the authors have a good explanation for why their more narrow thesis is important: Personal service contracts that should be subject to specific performance are “legally and economically significant.” (P. 58.)

Early on, the authors clarify that their goal is to show that specific performance should not be ruled out and the general rules governing equitable remedies should apply if the breaching employee is wealthy, sophisticated, and money damages are incalculable or insufficient to make the employer whole. Further, courts should consider specific performance only when a reasonable substitute employee is not available.  In addition, specific performance would only apply if the parties agreed to the remedy in their contract and would never apply if the employee had little bargaining power nor to contracts with at-will employees (the latter for obvious reasons).  Finally, the duration of a specific performance order would be limited to one year or less. Thus, the authors would target for specific performance fixed-term contracts between employers and employees such as sports figures, entertainers, and teachers, and even in these instances the typical flexible rules of equitable remedies would apply so that specific performance would not be automatic.

Thus, the force of Krawiec and Oman’s argument is limited in scope, but the categories of personal service contracts that would qualify for specific performance are important, often litigated, and high-stakes, and therefore well-worth their concern.  (Part IV of the article presents three helpful examples from actual cases.) Moreover, the lesson of the article is broader than simply advocating for specific performance of certain personal service contracts.  The article sends the message that seemingly intractable remedial contract rules can and should be challenged when inefficient and problematic.

In this brief review, I cannot do justice to the authors’ many insights and arguments and I urge people to read the article.  But in short, the authors first discuss their view of the advantages of specific performance over existing remedies in the contracts they target, including money damages, which are “often difficult to calculate and under-compensatory” (P. 8), and negative injunctions prohibiting employees from working elsewhere because existing law already bars such injunctions that coerce performance.  The authors also point out that many breaching employees in their target group can afford to decline substitute work, so negative injunctions may be worthless. The authors also focus on the special benefits of specific performance, including that employers can invest in their human capital with confidence of an adequate remedy in case of breach.

Assuming money damages are inadequate and negative injunctions are an insufficient solution, the authors still must contend with the traditional reasons for denying specific performance of personal service contracts, including the Thirteenth Amendment’s involuntary servitude prohibition, additional autonomy concerns, and the hurdles to successful judicial monitoring of performance.  The authors have reasonable responses to each concern.

The authors first discuss involuntary servitude and the 13^th Amendment and conclude in part that “it is very unlikely that specific performance of personal service contracts would run afoul of the original meaning of the 13^th Amendment.” (P. 26.) In part, they reason that the employment contracts they have in mind have limited durations, measured obligations, and include compensation. (P. 29.)

Among the authors’ responses to autonomy concerns, they point out that money damages may be large and quite coercive as well. Relatedly, they observe that objections to specific performance often arise because of the substance of the contract, such as a movie star subject to “demeaning conditions.” (P. 34.)  In such cases, the authors unsurprisingly do not favor specific performance, but point out that their proposal “is about the remedy that should be available for otherwise unobjectionable contracts.”  (P. 34.)  And recall that the authors would apply specific performance only when the contract calls for that remedy after breach and when the employee enjoyed equal bargaining power.

Can the judiciary successfully monitor performance, including by an employee whose performance is at best half-hearted?  Kraweic and Oman note that contract law already successfully requires evaluation of the quality of performance, for example, in cases involving allegations of bad faith or material breach. The authors also argue that employees’ reputational concerns often will make a perfunctory performance unlikely.

Of course, there are reasonable responses to many of the authors’ arguments. For example, I wonder whether reputational concerns will have much effect on performance when athletes, entertainers, and the like wish they were elsewhere. They might not purposefully breach, but doesn’t effective performance require enthusiasm for what they are doing? In addition, the reader may be uneasy about requiring warring parties to perform their contract. Krawiec and Oman respond in part that courts already order employers to reinstate wrongly fired employees, but it would be helpful to know how that has worked out for both the employer and employee.

I have only scratched the surface of the authors’ arguments that specific performance of personal service contracts should be available in a limited set of circumstances.  Although the reader may not agree with all or even many of the arguments, they are worth pondering and the article is well-worth reading!

Contract Law and Inequality

Jul 10, 2024 Orit GanAdd a Comment

Orit Gan

Inequality of bargaining power between parties is a significant concern in contract law. Parties are not always equal, and negotiations may occur under conditions of power imbalance, impacting the contract terms.

A fascinating new article by Rebecca Stone explores which determinants of inequalities of bargaining power between contracting parties should be legally relevant.

The article begins by defining bargaining power as the party’s ability to ensure that the contract terms serve their own objectives. Inequality of bargaining power means that one party possesses a greater ability to do so than the other. Bargaining power is influenced by factors both within the party’s control (such as their interest in the contract) and outside their control (such as the actions of the other party and social conditions), as well as by objective factors (such as the market) and the parties’ perceptions (such as a party’s beliefs regarding the other party’s interests).

Inequality of bargaining power has legal consequences and may lead to invalidation or adjustment of the contract under doctrines such as unconscionability, duress, undue influence, fraud, and misrepresentation. Which inequalities of bargaining power should be legally relevant? The article examines several theories and demonstrates how each theory yields a different answer to this question.

Economic analysis of contract law assumes that parties are rational self-interested agents entering a contract to maximize their welfare. Therefore, this theory advocates a procedural approach to address inequalities that hinder the disadvantaged party’s rational pursuit of their ends. Consequently, some instances of informational asymmetries, coercion, or exploitation warrant intervention to enhance efficient outcomes. However, the distribution of welfare is largely beyond the reach of contract law.

Rights-based analysis may endorse one of three different notions of justice. Under the procedural justice approach, contract law is committed to formal equality and free will. Therefore, contract law should intervene in cases of inequality of bargaining power that impede the disadvantaged party’s consent. Under the transaction-specific justice approach, contract law should also consider substantive requirements of transaction-specific fairness alongside procedural requirements. This approach is broader, justifying, for example, regulation of standard form consumer contracts due to consumers’ cognitive biases. According to these two notions of justice, contract law generally need not intervene in cases of situational inequalities. Under the systemic justice approach, contract law is committed to substantive justice, which is the broadest notion of justice of the three. That is, contract law should consider systemic background inequalities and support just relations between the parties. Under this approach, a contract must meet both procedural and substantive standards to be morally valid. This approach justifies, for example, mandatory rules and consumer regulations.

This thought-provoking article raises several interesting issues: First, there are different kinds of bargaining power. The stronger party might gain its advantage due to individual reasons (for example, being better informed than the other party) or due to systemic advantage (for example, sellers over consumers) due to personal reasons (such as less interest in the contract than the other party) or social reasons (such as discrimination based on gender, race, or class). Accordingly, there are also thin concepts of the inequality of bargaining power principle (that consider only procedural requirements) and thicker ones (that consider moral, substantive requirements). Second, according to some approaches not only courts but also other branches of government should police inequality of bargaining power. That is, alongside contract law doctrines (such as unconscionability, duress, undue influence, fraud, and misrepresentation), legislation and regulations (for example, consumer law) also reduce disparities of bargaining power. Third, according to some approaches the law can be committed not only to reducing inequality of bargaining power but also to promoting equality and just relations between the parties. That is, the law should invalidate contracts due to inequality of bargaining power as well as actively advance social equality by empowering disadvantaged parties.

By analyzing inequality of bargaining power from different theoretical perspectives, this article beautifully demonstrates the richness of theories of contract law.

Inequitable Servitudes: Property Law Shield Against Contractual Excesses

Jun 12, 2024 Martha ErtmanAdd a Comment

Martha Ertman

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.⁴ 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.⁵ 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.

1. 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).
2. 524 S.W.2d 210 (Mo. Ct. App. 1975).

On Preventing the Abuse of Contracts

May 14, 2024 Hila KerenAdd a Comment

Hila Keren

The notorious 1905 Supreme Court decision in Lochner v. New York has become a symbol of a clash between the State’s wish to protect people from inadequate working conditions and the freedom of businesses and workers to use contracts to regulate their relationships. While the protective regulation of the work arena has since become more prevalent and has been approved time and again by a post-Lochner Supreme Court, businesses on the hiring side have never ceased attempting to evade these regulations by using contracts and insisting on their enforcement in the name of the freedom of contact. Is contract law truly the nemesis of fair labor? Must it undermine workers’ minimum legal protections against a long list of evils such as safety hazards, exhaustive hours, meager pay, and discrimination?

Hanoch Dagan and Catherine Fisk’s forthcoming Article, Independent Contractors and The ABCs of Contract Law, answers those questions with a rigorous “no.” The UC Berkeley co-authors have combined their expertise in labor law (Fisk) and contract law (Dagan) to provide a powerful critique of the conventional belief that their respective fields collide. Their collaboration presents a compelling and, I would add, hopeful reconstruction of the relationship between workers’ rights and contracts.

As its title suggests, the article focuses on businesses’ strategic efforts to avoid commitment to workers’ rights by classifying workers as independent contractors. In response to this practice, many states have adopted some version of a test called the ABC test. The test classifies those who provide services for remuneration as employees eligible for a full spectrum of protections unless hiring parties can prove all of the ABCs that give the test its monicker: (a) they do not exercise control; (b) the work is done outside of their usual course of business; and (c) apart from this work, the hired people separately earn from similar activities. Dagan and Fisk explain that the ABC test generated a “heated debate” (P. 3), but they also identify a zone of agreement between proponents and opponents. Both sides believe the ABC test reflects and reinforces a fundamental conflict between work law and contracts: the former demands “a floor” (e.g. P. 27) of acceptable working arrangements, while the latter allows the exchange of work for money without adherence to any imposed minimum. The authors challenge this consensus, depicting it as both “misguided” and “possibly consequential” (P. 3.)

The article’s central claim is that the ABC does not threaten the purpose and usefulness of contracts nor defeat the essence of the contractual system. Instead, Dagan and Fisk seek to show that the ABCs protective model aligns with contract law because it prevents hiring entities from abusing contracts and the power to enforce them at the expense of “workers, their families, their communities, and the economy” (P. 3.) As a contemporary and known example of such abuse, the authors offer the economic, legal, and political investment of companies like Uber and Lyft to escape a net of workers’ rights by deeming their drivers independent contractors.⁶ This method, the authors posit, invites exploitative labor practices, enabling companies to extract profit from labor while disclaiming any responsibility for the workers’ wellbeing. Effectively, then, by defining the workers as “entrepreneurs rather than employees” (P. 17), the companies enrich themselves by charging the workers with much of the expenses of running their business.

Dagan and Fisk insist that such attempts to abuse contracts at the expense of workers not only justify the legal response captured by the ABC test but also contradict core principles of contract law. In their view, this creates alignment rather than tension between work law and contract law. The authors maintain that the erroneous conventional belief in a collision between workers’ rights and contracts is rooted in what they call a “spurious” account of contract law (P. 43). They further assert that the contradiction thesis loses its purchase once a more modern and liberal version of contract law is adopted. So, the authors dedicate much of the third part of the article to proposing such an alternative version, relying on a series of Dagan’s previous work in which he developed, in collaboration with Avihay Dorfman, a relational justice approach to private law in general and contract law in particular.⁷

The aspect of the relational justice approach that is most relevant to the evaluation of the ABC test emphasizes that parties to a contract owe each other much more than merely keeping their express promises. They also ought to treat their contract as “a joint plan” and thus have “interpersonal duties” (P. 23) that require them to respect each other’s “self-determination and substantive equality.” (P. 25.) And, because those duties are part of “the normative DNA of liberal contract” (P. 30), they cannot be relinquished by the parties, including not by defining workers as independent contractors. For that reason, when one party follows the words of the contract but disrespects its counterparty’s autonomy, contract law cannot simply enforce the expressed contract while ignoring the relational problem. Rather, because this body of law confers on people the power to enhance their autonomy by making commitments enforceable, it must also monitor how parties use this power. Therefore, contract law must intervene when one party exercises its power in a manner that undermines the autonomy of the other. Or, as Fisk and Dagan describe it, in such moments, contract law operates to “prevent abusing the idea of contract for a purpose that contravenes the telos of liberal contract” (P. 43).

Significantly, the preventive task the authors define is not only an aspirational view of contract law. While they admit that fully advancing relational justice is “a work in progress” (P. 26), they also present compelling evidence that our current contract law already resists the abuse of contracts, demanding a minimal level of other-regarding commitment. Such is the case, for example, with the principle of unconscionability that prevents enforcement of highly exploitative contracts and with the implied duty of good faith that calls on parties to align their performance not only with the wording of their contract but also with each other’s reasonable expectations and the spirit of their joint project.

Applying Dagan and Fisk’s contractual approach to the ABC test thus justifies, supports, and explains the test as an evolution of contract principles. Critically, this is not merely a theoretical move. The authors hope that by defeating the myth of conflict between the test and contracts, their work would empower more states to follow California and adopt the ABC test in its full form. They also believe that recognizing the alignment with contract law would inspire courts to interpret the test generously, thereby improving workers’ protection.

All told, the Dagan-Fisk article forcefully vindicates the ABC Test. But what if the test deems workers non-employees? I read the article as planting the seeds for offering such workers minimal immutable rights outside of the test by applying a relational justice approach to the contracts that cover their services. Under this understanding, contract law generally limits the abuse of contractual tools and demands some commitment to fairness. These principles apply to any type of contract and thus do not hinge on specific classification of the contractual relationship. For example, as I have recently argued, partly by drawing on relational justice, providers of goods and services in the open market who discriminate and humiliate their counterparties breach the contractual duty of good faith.⁸ Accordingly, they should be held liable even after the Supreme Court has made nondiscrimination protections inapplicable.⁹

Similarly, those found ineligible for labor law’s protection should deserve contract law’s help. In contractual relationships of all kinds, the duty to respect the other party flows from the parties’ indisputable shared humanity. Hence the immutability. Contract law must not allow parties to avoid this duty by relying on doctrinal limitations or manipulations. Moreover, when states operate their contract law, they have a duty to all their residents to prevent abuse of contracts—not only on behalf of weaker parties but also to maintain the contractual system’s integrity and foster its growth. Dagan and Fisk’s Article introduces a pioneering step in this direction.

1. See also Veena Dubal, Wage slave or entrepreneur: Contesting the Dualism of Legal Worker Identities, 65 Cal. L. Rev. 123 (2017).
2. See, e.g., Hanoch Dagan & Avihay Dorfman, Justice in Contracts, 67 Am. J. Juris. 1 (2022).
3. Hila Keren, Beyond Discrimination: Market Humiliation and Private Law, 95 U. Col. L. Rev. 87 (2024).
4. 303 Creative v. Elenis, 600 U.S. 570 (2023).

Everything You Wanted to Know about (Commercial) Boilerplate

Apr 10, 2024 David HoffmanAdd a Comment

David Hoffman

Contract law as an academic discipline is as uneasily stuck together as the 1L course itself. The two major strands of self-identifying contract scholars–loosely, those that unpack “negotiated” business deals and those that lament “adhesion” consumer contracts–rarely talk to or learn from one another. And the problem replicates in the scholarly fields that have sloughed off from the core over time, from antitrust to corporate law, and from private employment to consumer privacy. Cross-pollination between scholars working on similar problems of consent, but on different types of agreements, is lamentably rare.

There are many causes for the fragmentation, and resultant decline, of a discipline that once produced great public goods like the UCC and the Restatement (2nd) of Contracts. One is the sheer volume of scholarship that each individual subdiscipline creates, and thus the barriers to entry for those looking to engage with the state of the art. We here at JOTWELL seek to offer you a curated set of papers to read, but only a dozen or so out of hundreds, across contract types, won’t make you a truly informed scholar.

It’s therefore with real enthusiasm that I can recommend to you a top-notch literature review, on an incredibly important topic: what do we know about commercial boilerplate. Commercial Boilerplate: A Review and Research Agenda, written for the estimable Annual Review of Law and Social Science by authors who’ve produced much of the ground-breaking work on that topic in the last generation, is everything you could hope for in the genre. It is lucid, insightful, generative and short. You should read it.

The authors usefully start with an intellectual history of the field of commercial boilerplate. Unlike in consumer contract context, scholars came to business contracts assuming that terms were dickered and priced, and thus meaningful. As they point out, early Law and Economics scholars bought attention to an inconvenient fact: “sub-optimal terms seem to persist in contracts among sophisticated commercial parties.” (P. 5.) And the more scholars looked, the more confused they got. They “discovered provisions in the standard form that were not understood at all, were not priced, and seemed to spread and be highly sticky despite the lack of comprehension.” (P. 7.) Not only was boilerplate suboptimal, but it constantly mutated in seemingly random ways: it varied a bit between deals, lawyers and across time. This created opportunities that clever lawyers could exploit (and they have). But it left scholars puzzled, trying to understand what was happening in the background to produce these messy terms.

The authors describe successive intellectual efforts to explain the world, and then summarize state of the art today. As they say, modern scholars are increasingly focused on how contracts are produced, focusing on both on the production markets and their actors. “At one end of the spectrum is the thin, bilateral market where parties have the luxury of designing bespoke contracts that perfectly embody the terms that are designed to implement their joint goals.” (P. 16.) But most commercial contracts are not built in that world, but rather in thick markets, where “parties may prefer standardization and economies of scale even at the risk of an increase in design errors.” (P. 17.) As the authors show using case examples from the sovereign bond markets (where they have extensively researched) these thick markets produce contracts marked by a variety of persistent bugs, from “landmines” to “historic holdovers” to “subversive accretions” to “obsolescence.” That these errors occur in billion-dollar deals remains an important motivating puzzle for contract theory, with implications for the interpretation and adjudication of such deals that have not yet been fully worked out. They offer a research agenda for scholars interested in commercial contracts, but which could be as easily generative for those who study deals in other parts of the contracting universe.

I certainly don’t think one review essay can unite the many strands of contract scholarship. But celebrating the production, and increasing the consumption, of intelligent literature reviews is a promising way for contract scholars to better understand each others’ projects. Far from being beholden to static and unrealistic assumptions, legal economists and sociologists in the last generation have made enormous progress toward making commercial contract scholarship more realistic. Other scholars would do well to learn what they’ve been up to.

Debunking the Myths of Law and Economics

Mar 15, 2024 Nancy KimAdd a Comment

Nancy Kim

In his book, The Analytical Failures of Law and Economics, Shawn Bayern tackles what, for a time, was arguably contract law’s leading school of thought, and argues that the emperor has no clothes. Bayern is not the movement’s sole critic; however, his critical approach is different because he adopts “analytical techniques, often of a type similar to those that have driven the legal-economics movement forward, in order to show that many leading legal-economic arguments would not reach their goals on their own terms.” (P. 3.) Thus, Bayern challenges law and economics theory with law and economics reasoning. (Maybe sometimes the Master’s tools can be used to dismantle the Master’s house).¹⁰ The book covers property, tort and contracts, but this review focuses on contracts.

Bayern starts with two important clarifications. First, he is not arguing that efficiency is not important. However, the “orthodox American law-and-economics movement” is a “poor way…to achieve efficiency” (P. 5) and “efficiency “is not the law’s only goal, does not have a singular definition, and is not always easy to recognize.” (P. 5.) The second clarification is that the law and economics movement has not been “worthless”; however, when it comes to “specific, determinative conclusions about legal policy” the movement “fails.” (Pp. 5-6.)

Bayern’s gloves-off writing style makes for easy reading, quite an accomplishment given its relatively dry subject matter. For the past few decades, the legal academy in general and contracts scholarship in particular, has seemed to be enamored or at least, highly deferential, to the law and economics movement (L&E). But Bayern suggests that L&E’s contributions are overblown in some ways and unremarkable in others. At its most useful, it is just what the law has always done which is consider economic reasoning in outcomes. In this form, it is, as Bayern notes, “not flashy” or “counterintuitive” but rather “tries to integrate broadly economic techniques with sensitivity and caution into the law.” (P. 6.) At its most self-important and presumptuous, however, it is a failure that robs the law of “its deeper efficiencies” and returns “only a mechanical- and usually politically right-wing –understanding of economic policy in its place.” (P. 6.)

And with that one-two punch, Bayern is off to the races. He lays the groundwork with a general critique of “several general patterns of analytical failure in legal-economic argumentation.” (P. 12.) These recurring failures include “ungraceful degradation” (P. 14.) because of its unrealistic assumptions, notably about human rationality but also about the state of the world and how it operates. Economic models may (sometimes, even often) work under perfect circumstances, but an argument based upon an economic model fails “to have any explanatory or justificatory force if the model is even slightly imperfect.” (P. 15.)

Bayern doesn’t shy away from toppling giants in the field or questioning the tenets of L&E classics. One such classic is Richard Posner and Andrew Rosenfeld’s “foundational” article on impossibility and related doctrines.¹¹ According to Bayern, their article argued that, all things being equal, parties (being self-interested and rational) would negotiate to make their contracts efficient; thus, contract law should allocate risks in the way the parties would have done if they had considered the issue. Bayern argues that their argument “fails to recognize…that not all contracts are negotiated in a perfect world in which parties can maximize the surplus of individual contracts.” For example, companies that employ agents to negotiate their contracts might impose rules to reduce agency costs which “may prevent agents from negotiating optimal individual contracts.” (P. 15.) In other words, assumptions about rationality, and even what is efficient, risk “tampering with that contract in ways that the parties would not at all have intended.” (P. 15.)

Another analytical failure of L&E is the “neglect of alternatives” which ignores that “even if an activity is productive…other activities may be more productive.” (P. 18.) Bayern observes, “This is like saying that being a manufacturer produces wealth, so we should encourage college graduates to become manufacturers.” (P. 18.) There are other failures (I especially like the “terror of costs and externalities”) but “ungraceful degradation” and “neglect of alternatives” seem to be particularly relevant to L&E as applied to contracts and contract doctrine.

According to Bayern, perhaps the biggest “misstep” is the theory of efficient breach”: “First, it is almost entirely wrong. Second, it has achieved quite a significant following; it is taught uncritically in many or most first-year Contracts courses in the United States.” (P. 86.) While influential among academics, it has an unimpressive track record in the real world: “Courts have never seriously adopted the rule….When given an opportunity to apply the theory of efficient breach…the law tends to hold otherwise across a wide range of questions and legal disciplines.” (P. 87.) Even Richard Posner, when faced with the opportunity, “rejected the theory.” (P. 89.) If Judge Posner isn’t going to apply efficient breach in the real world, then who is?

Bayern also tackles the new business rule and contract interpretation, “the trickiest, the most important, and the most litigated question in contract law.” (P. 99.) Here, Bayern notes that L&E favors textualism over contextualism because it is presumably more efficient; however, why it is more efficient is unclear. It is either because it lowers transaction costs (P. 99.) or reduces litigation costs” (P. 100.) Bayern dismantles each of these arguments in turn.

The 2008 crisis exposed as myths some of L&E’s assumptions, tarnishing the movement’s sheen. Bayern’s book provides the intellectual firepower to further debunk these myths. For those who have rolled their eyes at the impracticality of some of L & E’s assumptions and solutions, Bayern’s book is a warmly welcomed and long-awaited addition to contracts scholarship.

1. With apologies to Audre Lorde who famously stated, “The master’s tools will never dismantle the master’s house.” Audre Lorde, The Master’s Tools Will Never Dismantle The Master’s House (2018).
2. Richard A. Posner & Andrew M. Rosenfeld, Impossibility and Related Doctrines in Contracts Law: An Economic Analysis, 6 J. LEGAL STUD. 83 (1977).

Maybe Odysseus Was a Capitalist?

Feb 16, 2024 Daniel BarnhizerAdd a Comment

Daniel Barnhizer

In this article, Marietta Auer, Director of the Max Planck Institute for Legal History and Legal Theory, takes a sophisticated and nuanced look at the role of unequal bargaining power as it relates to both economics and legal theory. From my own perspective as an unrepentant libertarian and capitalist, there is much in the article with which I disagree. However, Auer’s observations on the importance of bargaining power inequality, the relationship between law and markets in a [quasi-]capitalist economic and political system, and the futility of attempts to use law to redistribute bargaining power among market actors are insightful, creative, and require engagement by those working on the problem of bargaining power.

Auer’s analysis begins with a survey of both classical and neoclassical economic arguments regarding the neutrality of markets. According to Auer, under the classical conception of private law in relation to markets, “the ground rules of private law, in particular property and contract law, provide a politically neutral framework that enables market transactions among equals.” (P. 6.) While it is questionable whether and to what extent legal scholars and courts of the so-called formalist period in American law and jurisprudence actually adhered to the classical conception as described by the later American Legal Realists,¹² the advent of American Legal Realism addressed the apparent disconnect between classical contract and property law versus practical economic realities in which facially neutral legal rules promoted exploitation and coercion in transactions affected by bargaining power disparities. As noted (with a big helping of judicial hubris) in what appears to be the first U.S. case to recognize explicitly the legal concept of inequality of bargaining power:

Our enlightened modern thought realizes that an equality of bargaining power between two such unequal parties [employees and employers] is impossible, and has attempted to equalize the balance through the labor unions and state regulation of industry; but old ideas die hard, and the pathways of progress are strewn with the fragments of legislation designed for this purpose but wrecked on the insistence of court after court that the state must not interfere with the ‘free right of contract.’¹³

As a result of Legal Realist influences, significant areas of contract law were subject to legislative efforts to redistribute bargaining power where transactions in those fields were perceived to suffer from significant inequalities, such as consumer transactions, labor law, and housing. (Pp. 7-8.) Auer notes, however, that in these fields:

[T]here are cases where the strategy of redistributing bargaining power through mandatory terms in private law transactions systematically fails to reach its goal and is actually ‘hurting the people one is trying to help,’ as Duncan Kennedy likes to put it. … The additional cost imposed by the mandatory contract term on the seller, landlord, or employer will likely not lead to the intended redistribution of wealth to the weaker market side, but will in fact be passed on to the buyer, tenant, or employee through higher prices or fewer opportunities of contracting. (P. 7.)

Following this introduction and historical review of classical, Legal Realist, and neoclassical jurisprudence relating to bargaining power disparities, Auer reviews current trends in critical jurisprudence, particularly in Law & Political Economy. Of particular importance, Auer observes critical arguments suggesting that if markets are created and shaped by law, then law should be used to reshape markets to accomplish redistributionary goals. (Pp. 10-12.) After observing that such arguments have failed to account for the actual “formally egalitarian structure of private law,” Auer moves to the primary argument of the article – namely that “there is a way to decode the myth of private power: understanding bargaining power.”

I argue that this [legal] understanding of unequal bargaining power is undertheorized because it misses the economic function of the mechanism of bargaining power in capitalist bargaining situations. This is a serious theoretical shortcoming because lawyers, as a consequence of the sociological fallacy of intuiting the power differential between the parties from an ad hoc mélange of criteria oscillating between the actual power to negotiate and the social status of the negotiators, systematically overestimate the regulatory potential of the law with respect to offsetting the effects of unequal bargaining power. As it turns out, the law cannot do much about unequal bargaining power in capitalist market transactions. (P. 13.) (emphasis added)

This paragraph is an extraordinarily important insight for contract doctrines dependent upon the concept of inequality of bargaining power. Bargaining power, as I’ve argued in past articles,¹⁴ is irreducibly complex and dynamic, often changing radically based upon new information, deceit, bluffing, availability of alternatives, access to legislative or regulatory bodies, and other factors. In cases applying contract law to individual disputes, courts are incompetent in determining which of the parties possessed superior bargaining power and which walked away with a greater share of the transactional surplus. Instead, both courts and legislatures conceal this incompetence behind a façade of poorly constructed status-based criteria that generally ignore reality in favor of presenting analysis that can be perceived as coherent and credible to users of the legal system.

Auer’s acknowledgment of the poorly-theorized nature of bargaining power disparities in the legal context proceeds further to suggesting that bargaining power should be analyzed economically and that legal tools that attempt to redistribute bargaining power within a capitalist system “will at most effectuate ‘palliative redistribution,’ meaning that it will not change the overall distribution of capitalist wealth in more than marginal cases, where it comes at an additional cost to the rule of law.” (P. 23.) Admittedly, I have my own concerns regarding the effectiveness of economic modeling of bargaining power, but Auer’s treatment of the concept and the futility of legal attempts to redistribute bargaining power is an extraordinary insight that makes this article well-worth reading.

1. See, e.g., Mark L. Movsesian, Rediscovering Williston, 62 Wash. & Lee L. Rev. 207, 209-217 (2005) (arguing that later Legal Realists’ characterization of Samuel Williston’s formalism as abstract and disconnected from real world impacts is inaccurate and ignores the pragmatism, rejection of essentialism, and moderate approach to freedom of contract).
2. Ocean Accident & Guarantee. Corp. v. Industrial Comm’n of Az., 257 P. 644, 645 (Az. 1927).
3. See, e.g., Daniel D. Barnhizer, Inequality of Bargaining Power, 76 Colo. L. Rev. 139 (2005); Daniel D. Barnhizer, Bargaining Power in Contract Theory, in Larry A. DiMatteo, Robert A. Prentice, Blake D. Morant & Daniel D. Barnhizer, Visions of Contract Theory: Rationality, Bargaining and Interpretation (2006); Daniel D. Barnhizer, Propertization Metaphors for Bargaining Power and Control of the Self in the Information Age, 54 Cleve. St. L. Rev. 69 (2006); Daniel D. Barnhizer, Bargaining Power in the Shadow of the Law: Commentary on the Contributions of Professors Wright & Engen, Professor Birke, and Joshua Bowers, 91 Marquette L. Rev. 123 (2007); Daniel D. Barnhizer, Context as Power: Defining the Field of Battle for Advantage in Contractual Interactions, 45 Wake Forest L. Rev. 607 (2010); Daniel D. Barnhizer, Escaping Toxic Contracts: How We Have Lost The War on Assent in Wrap Contracts, 44 Southwestern L. Rev. 215 (2015).