Thursday, May 7, 2009 - FEEBAYS new user agreement - Part 2L. The Principles of Contract

284. International transactions

285. International transactions raise complicated issues in shaping of "content control" rules. The first issue for decision is whether to include international transactions in legislation based on content control provisions. If they are included for consumer transactions, then as Maxeiner has pointed out, comparative studies are required to identify whether terms are valid in foreign jurisdictions. International transactions involving commercial parties are more complicated. For example, the duty to inspect and right to return for defects may be inappropriate if a U.S. seller has shipped 1900 tons of polypropylene to a purchaser in Kenya and the goods are sitting in a warehouse in the port of Mombasa. In this example, a standardized term may incorporate a risk allocation rule of the International Chamber of Commerce. International carriage contracts may place maximum limits on liability, and the goods may have been transferred by combined or successive transport. Any "direct control" rule must be designed to interface with law that controls international transactions such as the CISG, the various conventions on carriage and commercial trade terms. In many instances, the standardized term should be enforced per se; or left to other law.

     Other tactics

286. Other tactics may supplement the reinvention of contract law.[323] Following the European approach, domestic officials may be given authority to police standardized terms and bring declaratory actions against them seeking their invalidity provided the standards used to determine the validity of the term are based on a "direct control" statute. A possible benefit would be the production of precedent to guide the behavior of law-abiding firms. In addition, groups like Consumers Union in the United States and their European counterparts could extend their product evaluations to cover all properties of the commodity including its contractual terms. Buyers often rely on Consumers Union reports to make purchasing decisions. Unlike individual purchasers lacking the time, money or interest in evaluating risk/price terms, Consumers Union has the resources to make these evaluations. Bad publicity alone has the power to force change in company terms. Just imagine a Web site containing a list of firms using what professional consumer groups deemed were abusive terms. In addition, the preference to solve problems outside the framework of law is well established. Recourse to legal solutions is infrequently used given the number of potential disputes and is not always necessary. Many merchants do not stand on standardized terms because they have a financial incentive to keep the customer. Rather, they resolve problems outside the legal system by acting toward their customer not on the basis of contract but on the basis of business practice.

     Conclusion

287. The scholarly literature tends to project an image of a world filled with cutthroat standardized terms. The market study set forth in Chapter Three contradicts that assumption, though a horror story inevitably arises, and if widely published, creates a misperception of the market based on the fallacy of composition. If the image of standardized contract in the literature is correct, the question is why not forbid sellers from using any standardized terms? However, the consensus of the experts, even the European Union Commission, is standardized terms play an essential function in the market in terms of innovation that cannot be better carried out by government. The argument is not new, goes back to Prausnitz, and now is a platitude. The task therefore is to allow standardized terms to develop in the market under conditions where they reduce product cost, while simultaneously using public authority to set limits to standardized terms when they produce inefficient results.
288. Empirical studies are needed to show the incidence of types of loss in the market, identify the availability and the social cost of insuring against them. A joint effort between lawyers and economists is required to produce this study. Based on that study's results, the caretakers of contract law - legislature, parliament or self-appointed institutions - then would have the chance to develop rules based on non-legal information, commercial reality and soft public policy. Legal doctrine masks the causes of contract problems by resorting to rules about consent and ignores the broader implications of the legal decisions for the market. The proposition that firms are always in the best position to insure and spread risk is facile without further empirical support. Allocating risk to firms may be appropriate under one set of circumstances, but not under a different set of circumstances. Making those distinctions is the major challenge in the creation of comprehensive "content control" rules taking into account nuances of the dynamics of exchange.
289. The time is ripe for reinventing contract. Instead of hermetically sealing standardized terms within contract law, or dealing with them under consumer legislation, it is preferable to treat them independently and globally. Questions of law arising under the use of standardized terms then would be referred to special law. That approach would avoid recourse to vague judicial doctrine or rigid consumer rules. There is no reason why a code governing standardized terms could not be the product of an international organization to strive for uniformity across borders. Model laws promulgated by the International Organization for the Unification of Private law and the United Nations serve as exemplars. The major barrier to reform is inertia and conservatism. The legal community has adapted to standardized terms within their preconceived notions of contract law as a person with a broken leg adapts to a crutch. But why limp when you can sprint?

Appendix - Standard Form Contracts In Use In Selected Sectors