The Reunification of Contract Law: The Objective Theory of Consumer Form Contracts
72 Pages Posted: 1 Aug 2009
Date Written: May 1, 1993
Despite the ubiquitousness of standard form contracts in the world of consumer transactions, there is no consensus as to how these contracts ought to be constructed. Some courts continue to treat form contracts as if they were classically negotiated contracts. Others attempt in a variety of ways to factor in the reality that consumers entering into these contracts are not able to negotiate the terms and almost always sign these documents, which are presented on a take-it-or-leave-it basis, without reading them. This article posits that the cause of this continued confusion over form contracts is due to a basic failure of courts to adhere to fundamental principle of contract law, that a contract is interpreted according to the objective understanding of the parties. If courts would acknowledge that the reasonable drafters of form contracts do not expect the consumer to have read the multiple pages of a form contract, then courts would conclude a reasonable drafter would not understand the signing of the contract as indicating assent to unexpected and unfair terms. Instead, using the objective theory of contracts, courts facing a consumer form contract should consider the following questions: 1) What terms would a seller reasonably expect were known and understood by the non-drafting party? 2) What subordinate terms were pointed out or explained by the seller? 3) Was information conveyed by the seller, either directly, by an agent or by advertisements, to create a reasonable expectation in the consumer? 4) What would the reasonable seller have assumed was the consumer's purpose in entering into the transaction? 5) Did the consumer communicate to the seller information indicating a particular understanding of the terms of the contract? 6) Is a clause favoring the drafter reasonably tailored to accomplish a legitimate purpose? 7) Does an unknown one-sided clause deal with issues beyond the realm of contemplation of the reasonable consumer at the time of contracting?
Keywords: consumers, form contracts, UCC, contract law, unfair terms, objective theory of contracts, contract terms
JEL Classification: K12, K29, K39
Suggested Citation: Suggested Citation