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Contracts of Adhesion-Some Thoughts About Freedom of Contract

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CONTRACTS OF ADHESION-SOME THOUGHTS ABOUT FREEDOM OF CONTRACT FRIEDRICH KESSLER With the development of a free enterprise system based on an un- heard of division of labor, capitalistic society needed a highly elastic legal institution to safeguard the exchange of goods and services on the market. Common law lawyers, responding to this social need, trans- formed "contract" from the clumsy institution that it was in the six- teenth century into a tool of almost unlimited usefulness and pliability. Contract thus became the indispensable instrument of the enterpriser, enabling him to go about his affairs in a rational way. Rational be- havior within the context of our culture is only possible if agreements will be respected. It requires that reasonable expectations created by promises receive the protection of the law or else we will suffer the fate of Montesquieu's Troglodytes, who perished because they did not ful- fill their promises. This idea permeates our whole law of contracts, the doctrines dealing with their formation, performance, impossibility and damages. Under a free enterprise system rationality of the law of contracts has still another aspect.1 To keep pace with the constant widening of the market the legal system has to place at the disposal of the members of the community an ever increasing number of typical business trans- actions and regulate their consequences. But the law cannot possibly anticipate the content of an infinite number of atypical transactions into which members of the community may need to enter. Society, therefore, has to give the parties freedom of contract; to accommodate the business community the ceremony necessary to vouch for the delib- erate nature of a transaction has to be reduced to the absolute minimum. Furthermore, the rules of the common law of contract have to remain Jus dispositivum--to use the phrase of the Romans; that is, their appli- cation has to depend on the intention of the parties or on their neglect to rule otherwise. (If parties to a contract have failed to regulate its con- sequences in their own way, they will be supposed to have intended the consequences envisaged by the common law.) Beyond that the law cannot go. It has to delegate legislation to the contracting parties. As far as they are concerned, the law of contract has to be of their own making. 1. Max Weber, Rechtssoziologie, 3 (2) GRUNDRISS DER SOZIALOEKONOMIK (2nd ed. 1925) 413 et scq. HeinOnline -- 43 Colum. L. Rev. 629 1943 COLUMBIA LAW REVIEW Thus freedom of contract does not commend itself for moral rea- sons only; it is also an eminently practical principle. It is the inevitable counterpart of a free enterprise system.' " As a result, our legal lore of contracts reflects a proud spirit of individualism and of laissez faire. This is particularly true for the axioms and rules dealing with the for- mation and interpretation of contracts, the genuineness and reality of consent. Contract-the language of the cases tells us-is a private af- fair and not a social institution. The judicial system, therefore, provides only for their interpretation, but the courts cannot make contracts for the parties.2 There is no contract without assent, but once the objective manifestations of assent are present, their author is bound. A person is supposed to know the contract that he makes.3 "A mere offer imposes no duty of action upon the offeree; there is no obligation to accept or reject or to take any notice of it."4 If an offeror does not hear from the offeree about the offer, he is free to make inquiries or to withdraw his offer, but he cannot regard silence as an acceptance. Either party is supposed to look out for his own interests and his own protection. Op- pressive bargains can be avoided by careful shopping around. Every- one has complete freedom of choice with regard to his partner in con- tract, and the privity-of-contract principle respects the exclusiveness of this choice.5 Since a contract is the result of the free bargaining of parties who are brought together by the play of the market and who meet each other on a footing of social and approximate economic equal- ity, there is no danger that freedom of contract will be a threat to the social order as a whole. Influenced by this optimistic creed, courts are la. Pound, Liberty of Contract (1909) 18 YALE L. J. 454; Williston, Freedom of Contract (1921) 6 CoRNEL.L L. Q. 365; Hamilton, Freedom of Contract,3 ENcvc. Soc. Scr. 450. 2. Urian v. Scranton Life Insurance Company, 310 Pa. 144, 165 At. 21 (1933); Imperial Fire Insurance Company v. Coos County, 151 U. S. 452 (1894). 3. In the absence of fraud or misrepresentation parties who have put their contract in writing and signed it will not be heard to say that they have not read it or did not know, understand or assent to its contents provided the document is legible however small the print. L'Estrange v. F. Graucob Ltd., 2 K. B. 394 (1934).' For American cases see 1 WILLISTON, CONTACTS (rev. ed., 1936) § 90A. 4. Prosser, Delay in Acting on an Application for Insurance (1935) 3 U. or Cni. L. Ray. 39, 45. 5. Coast Fisheries Co. v. Linen Thread Co., 269 Fed. 841 (D. Mass. 1921); Kaufman v. Sydeman, 251 Mass. 210, 146 N. E. 365 (1925). The evolution and gradual restriction of the privity of contract principle with the help of agency (un- disclosed principal), third party beneficiary, assignment and tort doctrines ex- presses our awarene-5s of the growing impersonality of the market and of the so- cial function of contracts. We regard'the undisclosed principal doctrine no longer as a wholly anomalous doctrine which ignores the fundamental notion of the com- mon law "that a contract creates strictly personal obligations between the con- tracting parties." HUFFCUT, AGENCY (2d ed. 1921) 158; Ames, Undisclosed Prin- cipal-His Rights and Liabilities (1909) 18 YALE L. J. 443. The privity of con- tract doctrine no longer perfectly insulates the producer from direct liability to the ultimate consumer, as the food and dangerous instrumentality cases illustrate. HeinOnline -- 43 Colum. L. Rev. 630 1943 CONTRACTS OF ADHESION extremely hesitant to declare contracts void as against public policy "be- cause if there is one thing which more than another public policy re- quires it is that men of full age and competent understanding shall have the utmost liberty of contracting, and that their contracts when entered into freely and voluntarily shall be held sacred and shall be enforced by Courts of justice." The development of large scale enterprise with its mass production and mass distribution made a new type of contract inevitable-the stand- ardized mass contract.7 A standardized contract, once its contents have been formulated by a business firm, is used in every bargain dealing with the same product or service. The individuality of the parties which so frequently gave color to the old type contract has disappeared. The stereotyped contract of today reflects the impersonality of the market. It has reached its greatest perfection in the different types of contracts used on the various exchanges. Once the usefulness of these contracts was discovered and perfected in the transportation, insurance, and bank- ing business, their use spread into all other fields of large scale enterprise, into international as well as national trade, and'into labor relations. It is to be noted that uniformity of terms of contracts typically recurring in a business enterprise is an important factor in the exact calculation of risks. Risks which are difficult to calculate can be excluded altogether. Unforseeable contingencies affecting performance, such as strikes, fire, and transportation difficulties can be taken care of.8 The standard clauses in insurance policies are the most striking illustrations of successful at- tempts on the part of business enterprises to select and control risks as- sumed under a contract. The insurance business probably deserves credit also for having first realized the full importance of the so-called "ju- ridical risk", the danger that a court or jury may be swayed by "irrational factors" to decide against a powerful defendant. Ingenious clauses have been the result.9 Once their practical utility was proven, they were made use of in other lines of business. It is highly probable that the desire to avoid juridical risks has been a motivating factor in the widespread 6. Sir G. Jessel, M. R., in Printing and Numerical Registering Co. v. Sampson, L. R. 19 Eq. 462, 465 (1875). 7. PAUSNITZ, THE STANDARDIZATION OF COMMERCIAL CONTRACTS IN ENGLISH AND CONTINENTAL LAW (1937) reviewed by Llewellyn (1939) 52 HARv. L. REv. 700; Llewellyn, What Price Contract-An Essay in Perspective (1931) 40 YALE L. J.704; Issacs, The Standardizing of Contracts (1917) 27 YALE L. J.34; RAISER, DAs RECET DER ALLGEMEINEN GESCHAEFTSBEDINGUNGEN (1936). 8. For a far reaching clause in a sales contract see Hollis Bros. & Co. Ltd. v. White Sea Timber Trust, Ltd., 3 All Eng. R. 895 (1936). Here the seller of timber from a port in the Arctic Circle open for navigation only about twenty- one days stipulated "this contract is subject to sellers making necessary chartering arrangements for the expedition and sold subject to shipments any goods not shipped to be cancelled." 9. PATTERSON, ESSENTIALS OF INSURANCE LAW (1935) 282 et seq. HeinOnline -- 43 Colum. L. Rev. 631 1943 COLUMBIA LAW REVIEW use of warranty clauses in the machine industry limiting the common law remedies of the buyer to breach of an implied warranty of quality and particularly excluding his right to claim damages.' 0 The same is true for arbitration clauses in international trade.
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