The Benefit of the Bargain

69 Pages Posted: 8 Aug 2022 Last revised: 7 Sep 2022

Date Written: August 8, 2022

Abstract

Contract law has lost its way. Designed as a way to allow people to agree, it has over time become a means for large businesses to unilaterally impose terms and conditions on others. In large part that is a function of a fundamental change in how we contract. For most of history, for most deals, and even for most written contracts, the rules of the game were not set by the document itself but by the background customs and norms, the expectations of the parties, or the default rules of contract law.

Over time, and for a variety of reasons, contracts have become more fully specified in written documents. Those long, lawyerly documents are increasingly produced not by negotiation between lawyers, but in standard forms written by lawyers for one side that are not subject to change and must be agreed to on a take-it-or-leave-it basis. And even that “agreement” is increasingly itself a fiction, manifested not by signing a piece of paper or even clicking a button but by taking ordinary acts like visiting a website or even continuing to use a product you bought years ago.

The result is that society has lost the “benefit of the bargain” contract law once promised. Informal deals backed by understood legal rules and norms have been replaced by long legal documents written by one side and not subject to negotiation or revision. Not surprisingly, those terms reflect the interests of the parties who wrote them. And the reach of those documents has broadened dramatically, to the point where the average citizen might enter into a dozen or more contracts in a day, binding themselves to hundreds of pages of legalese, often without having any idea they are doing any such thing.

Ironically, courts are more willing than ever to defer to the words of those documents even as the documents are less and less likely to reflect any agreement between the parties. That deference is not justified by the realities of modern contract law. We have a set of default rules for contracts in the Uniform Commercial Code and the common law of contracts. Parties can and should be able to agree to change some (though not all) of those rules. But doing so should require a mutual intention to do so. And in the modern world most contracts don’t involve any actual agreement.

I propose a presumption that standard form contracts are subject to and cannot vary the default rules of contract law. The parties can vary those rules only by express agreement and only when the parties make an informed choice to do so. Except in a negotiated contract setting between sophisticated parties, that informed choice should require the party offering the form contract to offer a choice between their proposed terms and the basic default rules of contract law. Want your customers to agree to terms that vary from the norm? You’ll have to offer them other terms that they like well enough to pick your contract over the default. Requiring that choice will reduce the reflexive use of form contracts and the use of one-sided terms in those contracts. I call this proposed requirement “actual choice.”

Suggested Citation

Lemley, Mark A., The Benefit of the Bargain (August 8, 2022). Stanford Law and Economics Olin Working Paper No. 575, Available at SSRN: https://ssrn.com/abstract=4184946 or http://dx.doi.org/10.2139/ssrn.4184946

Mark A. Lemley (Contact Author)

Stanford Law School ( email )

559 Nathan Abbott Way
Stanford, CA 94305-8610
United States

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