Exit, voice, and boilerplate

Note: This is the fifth of six blog posts on Nate Oman’s new book The Dignity of Commerce: Markets and the Moral Foundation of Contract Law.

Now that we have surveyed Professor Oman’s chapter on contract remedies (see our 3/21 blog post) as well as his chapter on the doctrine of consideration (see our 3/19 post), it’s time to turn our attention to his pièce de résistance–his chapter on boilerplate agreements (Chapter 7), arguably the most important and original chapter in his book. In his boilerplate chapter, Professor Oman bravely leaves behind the commercial hustle and bustle and Old World charm of the Rialto (as portrayed by the great Bard of Avon) and delves instead into the coldest and most inhospitable corners of the World Wide Web. Specifically, he swaps Shylock’s immortal contract in Shakespeare’s Merchant of Venice with those unreadable and hideous drop down “Terms of Use” and “Terms of Service” tucked away in the inner recesses of the Internet.

Since all the arguments against boilerplate contracts just boil down (pun intended) to aesthetic and moral considerations, simply reflecting what our academic colleague Tyler Cowen derisively calls “the fallacy of mood affiliation,” we won’t rehearse these well-worn anti-boilerplate arguments here. Suffice it to say that Professor Oman does a capable job of restating and refuting all the standard objections to such contracts (pp. 135-141), although Oman notes (in circular fashion) that the actual terms of boilerplate agreement don’t even matter most of the time, except when they do! By way of example, we found the following passage in Oman’s book somewhat circular (p. 152, footnote omitted):

“Frequently, [boilerplate] contracts are embedded in ongoing relationships between the parties characterized by a significant amount of give and take that ignores formal contractual language. … Indeed, formal [boilerplate] contracts frequently do not govern ongoing relationships between the parties. Rather, they are meant only to lay out so-called end-game norms that govern the breakdown of relationships.”

In any case, Oman’s originality–and his main contribution to the scholarly literature on contracts–lies elsewhere. Specifically, Oman argues that boilerplate agreements should ordinarily be enforceable because such standard form contracts facilitate mass markets and mass commerce. But being original and being right are not the same thing! Ultimately, the main problem with Oman’s pro-boilerplate argument is that it privileges “voice” over “exit.” For markets to function well, however, people need to be free to exit their commercial relationships, not just voice their complaints. But to the extent boilerplate contracts make the exit option too costly or difficult for consumers, such unreadable (and mostly unread) agreements won’t be self-correcting. Indeed, too much boilerplate might even end up stifling the emergence of healthy and well-functioning markets. Why not argue instead that there is an optimal level of boilerplate or that boilerplate contracts are simply a necessary evil–the price we pay for mass markets–and let courts use their equitable powers to selectively strike out any unfair or overly one-sided terms?

Image result for terms of use

Caveat emptor?

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