This post is a presentation of information found in the Discussion Draft of the Consumer Contracts project. This will be presented at the 2017 Annual Meeting for discussion only.

Section 2, Adoption of Standard Contract Terms, is based on three fundamental observations:

  • First, evidence suggests that consumers rarely read standard contract terms no matter how these terms are disclosed. Informed assent to the standard contract terms is, by and large, absent in the typical consumer contract.
  • Second, the use of standardization in the production of contract terms is, like the standardization in the production of goods and services, a source of potential benefits to consumers and businesses alike. Standardization supports efficient production and distribution, resulting in lower prices and lower transaction costs, and the introduction of new forms of products and services.
  • Third, courts routinely enforce standard terms, even in the absence of informed assent to these terms. Still, courts insist on basic requirements before they conclude that standard terms have been incorporated into a consumer contract.

§ 2. Adoption of Standard Contract Terms

(a) A standard contract term is adopted as part of a consumer contract if, after receiving reasonable notice of the standard contract term and a reasonable opportunity to review it, the consumer signifies assent to the transaction.

(b) When a standard contract term is available for review only after the consumer signifies assent to the transaction, the standard contract term is adopted as part of the consumer contract if

(1) the consumer receives reasonable notice regarding the existence of the standard contract term before signifying assent to the transaction, and

(2) the consumer has a reasonable opportunity to terminate the transaction after the standard contract term is made available for review, and does not exercise that power.

(c) If the consumer signifies assent to the transaction, a contract exists even if some of the standard contract terms are not adopted. In such case, the terms of the contract are those adopted under subsection (a) or (b), along with any terms supplied by law.

Comment:

1.Adoption of standard terms separately from signifying assent to the transaction. A consumer contract is not formed unless the consumer signifies assent to the transaction. While in many instances the signifying of assent and the adoption of standard contract terms fully coincide, in other instances they may be done separately. Because the review of the entire body of standard contract terms is a costly and uncommon practice for the great majority of consumers, and because convenience in the delivery of the terms benefits consumers and businesses alike, the adoption of standard contract terms can be made either together with or separate from the act of signifying assent to the transaction. Standard contract terms may be presented to the consumer before the consumer signifies assent to the transaction, at the same time that the consumer signifies assent to the transaction but before the product is delivered or the service is rendered, when the product is delivered or the service commences, or after the product is delivered or the service is completed. Accordingly, a single consumer contract may contain several “packets” of standard contract terms, each adopted in a different manner and at a different time (see Comment 7 below). Signifying assent to the transaction as a whole involves adoption of at least some standard contract terms; other standard contract terms may then be adopted separately from those that are adopted concurrently with the signifying of assen

2. Signifying assent to the transaction. A consumer may signify assent to the transaction proposed by the business in any manner and by any medium reasonable in the circumstances. In inviting the consumer to enter a transaction, the business may establish how the assent may be manifested, as long as the manner and medium are reasonable in the circumstances. (Compare Restatement Second, Contracts §§ 30, 50.) Most often, assent to the transaction is signified by signing an agreement, paying, or clicking “Purchase Now” or “I Agree.” When signifying assent, the consumer is usually aware only of the core deal terms. Such core deal terms usually include price and payment methods, the shorthand description of the product, key delivery arrangements, and a few effectively communicated legal limitations (for example, the nonrefundable classification of some airline fares). In assenting to the transaction, the consumer simultaneously adopts these core terms—many of which are standard contract terms under the definition of § 1(a)(5), but some may be nonstandard—as part of the contract.

3. Adoption of terms reasonably available for review prior to signifying assent to the transaction. By signifying assent to the transaction, a consumer contract is formed. The consumer contract includes the “core” terms (those which, from the perspective of the consumer, characterize the deal), as well as other standard contract terms reasonably available for review prior to signifying assent. Some of these standard contract terms may be explicitly acknowledged by the consumer in the course of signifying assent to the transaction (Illustrations 2-5). Other standard contract terms may not be explicitly acknowledged, but as long as the consumer receives reasonable notice of them, including reasonable notice that they are intended to be part of the transaction, and has a reasonable opportunity to review them, they are adopted when the consumer signifies assent to the transaction (Illustrations 6-7). The standards for reasonable notice and opportunity to review applying to terms that are not explicitly acknowledged in the course of affirmatively signifying assent may be more exacting (see Comment 8 below).

4. Adoption of terms after signifying assent to the transaction. Subsection (b) identifies an alternative process for the adoption of standard contract terms, under which terms may be made available for the first time after the consumer signifies assent to the transaction. The process of replacing the opportunity to read prior to assent with a post-assent review period and termination right, allows the parties to enter transactions with greater ease and without sacrificing any protection that advance reading of the contract bestows. Subsection (b) validates this process, under which terms are adopted if the consumer receives reasonable notice before signifying assent to the transaction that additional standard contract terms will be forthcoming after signifying assent to the transaction, has a reasonable opportunity to review the terms upon their arrival, and has an opportunity to terminate the entire transaction.

5. Adoption by entry to, or use of, a proprietary environment of the business. Standard contract terms governing the proprietary environment of the business may be adopted as part of a consumer contract upon entry to, or use of, that environment, even if no other purchase is concluded while in the environment. Here, the transaction consists of the right to use the proprietary environment and receipt of the benefits it confers, under the terms specified by the business. If the consumer receives a reasonable notice of the standard contract terms and a reasonable opportunity to review them prior to entry, the standard contract terms are adopted upon entry, under subsection (a). In such case, the act of entering the environment and accepting the benefits that it confers constitutes assent to a transaction and adoption of the terms that the proprietor of the environment noticeably posts prior to entry. If, however, the consumer obtains access to the standard contract terms that govern that environment only after entry (for example, when the consumer enters the business’s website and only then is able to access a hyperlink governing the use of the website), the standard contract terms are not adopted under subsection (a). But they may be adopted as part of the consumer contract under subsection (b), if the consumer continues to use the proprietary environment after receiving an opportunity to review the terms. In such case, entry into the proprietary environment signifies assent to the transaction, and the consumer’s choice not to exit or otherwise terminate the transaction leads to the adoption of the posted standard contract terms. In either case, consumers have to be put on notice that terms are being adopted. Compare Restatement Second, Contracts § 69(1)(a), which allows silence to operate as an acceptance when the consumer “takes the benefit of offered services with reasonable opportunity to reject them and reason to know that they were offered with the expectation of compensation.” The use of the proprietary environment is the taking of the “benefit of offered services,” and the opportunity to reject the terms by exit is a “reasonable opportunity to reject” under § 69(1)(a).

6. Multiple contracts. A single manifestation of assent will sometimes result in multiple contracts. In particular, in connection with a purchase at a retail store, it is common for the consumer to enter into one contract with the retailer and into a second contract with the manufacturer of the purchased products. Such multiple contracting conforms to consumers’ expectations and provides a contractual basis for consumers’ rights against the manufacturer. The contract with the manufacturer consists of standard contract terms provided by the manufacturer that are often made available to review for the first time after the consumer signifies assent to the transaction. Under subsection (b) these terms are adopted, and the second contract is concluded, if the consumer receives reasonable notice, before signifying assent to the transaction, that terms governing the contract with the manufacturer will be forthcoming, has a reasonable opportunity to review the terms upon their arrival, and has an opportunity to terminate the entire transaction, including the first contract, upon such review.

7. Simultaneous use of different adoption processes. A business might attempt to use different adoption processes for different sets of terms within a single consumer contract. For instance, the business may ask the consumer to affirmatively signify assent to some standard contract terms (e.g., by clicking “I Agree”). In addition, the business may present other standard contract terms in a separate form, which the consumer is not asked to affirmatively acknowledge (e.g., the other terms may be posted on a website, or packaged with the product). When some of the standard contract terms are presented separately from those available for review prior to signifying assent, it is the burden of the business to provide consumers a notice that the transaction is governed by additional terms, and to post them or otherwise make them available in a location easily accessible to consumers. Such notice is necessary because consumers may reasonably expect that the affirmative adoption of a legal agreement would cover all of the standard contract terms. Absent such heightened alert, the simultaneous use of a different process would often fail the notice requirement, with the result that only the terms presented prior to the signifying of assent are adopted. (The requirement that presentation of additional terms be reasonable in light of the way other terms were presented also applies when the business modifies the original terms. See Comment 5 in § 3.)

8. Notice and opportunity to review. The business must provide reasonable notice of the existence of the standard contract terms and a reasonable opportunity to review them. The test for adequacy of notice depends on whether in the circumstances it is conspicuous enough to reasonably alert the consumer to the existence of terms. In some contexts, market norms and course of dealings may provide sufficient information to the consumer that additional standard contract terms are intended to apply to the transaction. These requirements of notice and opportunity to review apply when the terms are available for review prior to the signifying of assent to the transaction and are adopted under subsection (a), as well as when the terms are available for review only after the signifying of assent to the transaction under subsection (b). (Compare U.C.C. § 1-202 (defining “Notice”).)

9. Right to terminate. Under subsection (b), the consumer must be given a reasonable opportunity to terminate the transaction. The duration of the review-and-terminate period has to be reasonable, providing sufficient time for the consumer who is interested in reviewing the terms to assess their implications. In addition, the consumer’s opportunity to terminate the transaction after receiving the terms must not place unreasonable cost, personal burden, or risk of loss on the consumer.

10. Legal consequences of nonadopted terms. Standard terms that fail to conform with the adoption-process requirements of subsection (a) or (b) do not become part of the consumer contract. In such case, under subsection (c), there is a contract that contains the terms—standard and nonstandard—that were effectively adopted, supplemented by gap-fillers supplied by law. Non-adopted standard terms may, nonetheless, entail other legal consequences. For example, they may provide the basis for a claim by the consumer under Restatement Second, Contracts § 90.

11. Mandatory rule. The rules restated in this Section specify mandatory requirements of assent, notice, and opportunity to terminate, and cannot be excluded or derogated from by agreement. The business is free to specify the precise formats that the assent, notice, and termination take, as long as they are reasonable. If the business specifies a process for incorporating standard terms that does not meet these mandatory requirements, that process is not effective and the standard terms it purports to adopt are not adopted as part of the contract. (Compare § 9 of this Restatement.)

12. Relation to other Sections. The adoption rules in this Section represent a reality in which consent to the standard contract terms is rarely informed. In classic contract law, the requirement of assent was regarded as a meaningful measure that protects the contracting party, under the premise that this party would signify assent only to a contract that promotes its interests. The length and complexity of standard-form contracts has diluted the effectiveness and plausibility of this front-end self-protection. As courts have moved to permit the more lenient adoption procedures, they have simultaneously recognized the importance of other safeguards in consumer-contract law that place mandatory restrictions over permissible contracting. At the center of this alternative mode of consumer protection stand rules that strike down unconscionable terms and provisions that undermine consumers’ benefit of the bargain (§ 5). Adding to the protection afforded by the unconscionability doctrine are the good-faith duties that govern contract modification and open discretion terms (§§ 3-4) and rules that police deception and enforce precontractual affirmations and promises (§§ 6-8). If consumers are not expected to scrutinize the legal terms up front, courts should scrutinize them ex post. The ex post scrutiny is intended to uproot terms that are so extreme that they would be unlikely to survive in an environment of meaningful assent, or that peel off the value that consumers bargained for.

Thus, the “grand bargain” that the common law of consumer contracts reflects allows for relatively permissive adoption of the standard contract terms that businesses draft, balanced by a set of substantive boundary restrictions that prohibit businesses from going too far. One of the Restatement’s methodological cornerstones is the commitment, throughout, to reflect this fundamental tradeoff: as assent rules shift to the more permissive end of the continuum, courts have perceived greater need and justification for mandatory restrictions and ex post scrutiny of abusive terms. The two stand-alone regulatory techniques—mutual assent and mandatory restrictions—are independent legal doctrines, but their optimal scope developed within a unified hydraulic framework, whereby shifts within one doctrine inform the scope of the other.

13. Relation to the Uniform Commercial Code and to the Restatement Second of Contracts. The rules restated herein are consistent with, and elaborate on, the general principles of contract formation, as articulated in UCC § 2-204 and in Restatement Second of Contracts, Chapter 3. With respect to post-affirmation adoption of terms (subsection (b)), some courts have interpreted UCC § 2-207 to deny adoption of these terms as part of the consumer contract. Most courts, however, reject the application of UCC § 2-207 and, as no other provisions of Article 2 address the question which post-purchase terms become part of the contract, apply instead UCC § 2-204 and—through the gateway provided by UCC § 1-103(b)—general common-law principles.

ALI Staff

The American Law Institute

Oren Bar-Gill

Reporter, Restatement of the Law, Consumer Contracts

Oren Bar-Gill is the William J. Friedman and Alicia Townsend Friedman Professor of Law and Economics at Harvard Law.  His scholarship focuses on the law and economics of contracts and contracting.

Omri Ben-Shahar

Reporter, Restatement of the Law, Consumer Contracts

Omri Ben-Shahar is the Leo and Eileen Herzel Professor of Law and Kearney Director of the Coase-Sandor Institute for Law and Economics at University of Chicago Law School. He teaches contracts, sales, trademark law, insurance law, consumer law, e-commerce, food law, law and economics, and game theory and the law. He writes primarily in the fields of contract law and consumer protection.

Florencia Marotta-Wurgler

Reporter, Restatement of the Law, Consumer Contracts

Florencia Marotta-Wurgler is a professor of law at New York University School of Law and the director of NYU Law Abroad in Buenos Aires. Her teaching and research interests are contracts, consumer privacy, electronic commerce, and law and economics. Her published research has addressed various problems associated with standard form contracts online, such as the effectiveness of disclosure regimes, delayed presentation of terms, and whether people read the fine print.

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