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Adhesion contracts

Lack of coherence is again responsible for the disbandments experinced while dealing with standarf forms. The story is reknown; I can limit myself to a few scattered remarks.

The economic approach has been very effective in dispelling the previously dominating explaination of the widespread use of adhesion contract. Monopoly, despite Kessler's powerful pages, is no satisfactory answer: on the one hand, the area of adoption of consumer form contracts is immensely larger than the one where monopoly power can be reasonably detected; on the other, it has been successfully showed --and I am alluding, one more time, to a path-braking article by Alan Schwartz-- there is no reason to believe that a monopolist would resort to terms of quality significantly different from the one that would emerge in a competitive industry. So far, the destruens pars. But economic analysis went further: it did not hesitate to highlight the redeeming virtues of standard forms. They can benefit both consumers and sellers by reducing the cost of negotiation and by limiting the time each party has to spend on bargaining: were they not available, quick-hand transactions would be practicably impossible. Beyond the obvious transaction cost advantage, economists demonstrated that, although a term or condition may sound so harsh as to convince a court to identify its unconscionability, it can make perfect economic sense as, for example, a device for efficiently allocating some risk: this is the familiar tale of the poor widow, that the court wanted to rescue in Williams v. Walker-Thomas Furniture Co., at the expenses of poor but creditworthy consumers and, more generally, of all consumers who would have to do without the clause in the future.

Eventually, enthusiasm with the apparently counterintuitive outcome of the analysis took the lead: the too many myths surrounding the phenomenon were to be rejected or confined to marginal contingencies, standard forms were to be considered, on the whole, efficiency enhancing since they came close to the optimal deal the consumers would have subscribed, had they been fully aware of what was going on. At the end of the day, standard terms replece the default rules: in a sense, admittedly improper, the former absorb the role of the latter, they become the actual default rules.

The metaphor is candidly unorthodox, yet telling. From the standpoint of consumers, the contract is incomplete. Subordinate terms remain unknown, even after repeated purchases, because the cost od acquiring the necessary information exceeds the expected gain to the consumer from that information. Obscure "legalese", fine print, objective difficulties in explicating the content of the clauses (as Craswell provocatively puts it, "if society placed a high enough value on consumer education, three-day seminars prior to every sale might be seen as enhancing the quality of life...), all these factors contribute to feed consumer ignorance. Moreover, consumers are generally at a disadvantage in determining the probability and magnitude of the loss that might result from a risk imposed by the seller, who on the contrary can, as a consequence of the high volume of his sales, predict its impact and, thus, insure against it. Because most contracts do not resulin any loss to consumers, they tend to treat the risk as too insubstantial to protect against: therefore, they do not read the contract, let alone the almost inconceivable attempt to renegotiate terms. This lack of effort is, once again, rational.; on consumers' side, the contract is to be incomplete.

But, look. No default rule will come to rescue aggrieved consumers, when completion is impeded by some unfortunate event.. They will be replaced by the standard terms, that, in consumers' eyes, have the same exogenous nature of the proper default rules, but, to the surprise of no one, exhibit a routinary tendency to pools the risks onto the buyer.

I wonder whether such rules would survive the "acceptability constraint" posited by Schwartz. At a first glance, the answer might seem patently positive, if we move from the premise that the unknown terms pursue, after all, utility maximization; but the optimism might be tainted by the perception that, being the common use of recurring determined terms determined by sheer copying. network externalities are at work and might imply siboptimal patterns. At a closer exam, however, the answer turns out to be, at best, undetermined, since more favourable terms entail increased cost and price, which brings us back to the familiar knot whether people would be willing to pay in order to get better quality. Be it as it may, I believe that this trade-off should be no longer ignored, and, above all, that its solution should be left with the involved actors: which implies that consumers should be given a fair, smooth, passive way out of the (supposedly golden, but perhapps not so much) trap of standard forms.

Bluntly speaking, I would advocate some kind of Rakoff-like approach, aiming when we come to substance-- to rehabilitate the traditional set, if you prefer, the installed basis of the authentical default rules, and submitting the very possibility of inserting clauses deviating from those parameters to the obtention of a proper, adequately negotiated, hopefully conscious consent. If efficiency is to win, it'd better do so on the merits, instead of relying on process tricks.

Insofar as it bans a shocking black list of standard forms whose common thread is to shift risks from sellers to buyers, the EC Directive No. 93/13 --which, under almost any other respect, resembles Pandora's box and promises to create troubles much more than cure them-- moves in the right direction: a small, shy step, arguably, yet an impressive jump when confronted with the hands-off posture which reifies the attitude of mainstream law-and-economics.

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