Adhesion contracts

Adhesion contract Unilaterally drafted, standardized, one-sided Issues: contract formation, interpretation

(contra preferentum), validity

German cases Presumption against adhesion contracts Interpretation of open-ended code provisions

German Standard Terms Act of 1976

Adhesion contracts

G v St (German

Reichsgericht 1921)

Facts:

Issue:

Holding:

Analysis:

Adhesion contracts

G v St (German Reichsgericht 1921)Facts: Freight company (G) fails to deliver case of cigars

to tobacco shop (St). Issue: St demands the value of the missing case (5,166

marks), but G says that only owes 60 marks – liability limitation under contract, unless loss intentional. Is limitation valid?

Holding: No. Contrary to Civil Code bonos mores and Commercial Code that merchants show blameless.

Analysis: All Mannheim freight companies got together and limited liability – immoral exploitation of monopoly. Merchants can limit only if prove no-fault.

Adhesion contracts

Civil Code § 138 A legal transaction which is against public policy is void.§ 276(2) An obligor cannot be exempted in advance from liability for intentional acts [intentional violation of his duty to perform the obligation in good faith].

German Commercial Code §§ 390, 407, 417, 429[Merchants can avoid liability for lost goods if prove that exercise of due care could not avert damage.]

Adhesion contracts

What would the result be in the United States

under the UCC?

Adhesion contracts

UCC § 1-102. (3) The effect of provisions of this Act may be varied by agreement, … except that the obligations of good faith, diligence, reasonableness and care prescribed by this Act may not be disclaimed by agreement but the parties may by agreement determine the standards by which the performance of such obligations is to be measured if such standards are not manifestly unreasonable.

Adhesion contracts

Suedd. Transp. v W

(Reichsgericht 1923)

Facts:

Issue:

Holding:

Analysis:

Adhesion contracts

Suedd. Transp. v W (German Reichsgericht 1923)Facts: Shipper gives to forwarder goods that are stolen.

Shipper had signed standard form that says liability limited to 1.20 marks/kg – unless shipper pays for premium insurance.

Issue: Forwarder says insurance reasonable, not an exploitation of monopoly. Shipper says this lets forwarder off the hook – see G v. St. Is clause valid?

Holding: No. Analysis: Usually shipper wants goods, not lawsuit.

Forwarder, who must protect goods, cannot avoid liability by offering insurance.

Adhesion contracts

German Hyper-Inflation:

Number of German Marksto buy one ounce of gold

Jan 1919 170Sept 1919 499 Jan 1920 1,340 Sept 1920 1,201 Jan 1921 1,349 Sept 1921 2,175 Jan 1922 3,976 Sept 1922 30,381 Jan 1923 372,477 Sept 1923 269,439,000 Oct 2, 1923 6,631,749,000 Oct 9, 1923 24,868,950,000 Oct 16, 1923 84,969,072,000 Oct 23, 1923 1,160,552,882,000 Oct 30, 1923 1,347,070,000,000 Nov 5, 1923 8,700,000,000,000 Nov 30, 1923

87,000,000,000,000

Adhesion contracts

E Gu v. KB

(Bundesgerichtshof 1964)

Facts:

Issue:

Holding:

Analysis:

Adhesion contracts

Bundesgerichtshof

Adhesion contracts

E Gu v. KB (Bundesgerichtshof 1964)Facts: Furniture warehouse sues customer for storage

fees. Customer claims for goods damaged/stolen. Issue: Contract clause makes warehouse liable only if

fault charged. But Commercial Code places burden on bailor to show not blameless. Is clause valid?

Holding: No. Remand for more facts.Analysis: Commercial code is default rule, but

standardized clause is not “true freedom of contract.” Adhesion contract must be consistent with justice and equity. Proof within control of bailor.

Adhesion contracts

E Gu v. KB (Bundesgerichtshof 1964)

“[The bailee] must prove lack of fault on his part. It is unfair, by subjecting the bailor to standardized contract conditions, to place upon him the burden or proof as to circumstances which are outside of his sphere of influence and which lie within the bailee’s area of responsibility. “

What is the source for this rule?

Adhesion contracts

German Civil Code § 242

The obligor must perform in a manner consistent with good faith taking into account accepted practice.

Adhesion contracts

Was the 1964 decision a departure from the method or the results of the 1921 and 1923 decisions?

Adhesion contracts

How would an adhesion contract (disclaim liability, cap damages, shift burden) by a common carrier in the US be handled?

Adhesion contracts

Schlesinger:

“General proposition that (1) common carrier cannot exempt itself from liability for negligence and (2) contractual limitation on amount of liability valid only if choice of rates offered.”

Proposition subject to statutory modifications!

Adhesion contracts

How would an adhesion contract (disclaim liability, cap damages, shift burden)

by a seller of goods in the US be handled?

Adhesion contracts

Llewelyn, Karl N., The Bramble Bush: On Our Law and Its Study (1951)

… best introduction to the study of law for both potential and enrolled law students.

Adhesion contracts

UCC § 2-302. Unconscionable contract or clause.

(1) If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without

the unconscionable clause, or it may so limit the application of any unconscionable

clause as to avoid any unconscionable result.

Adhesion contracts

UCC § 2-302. Unconscionable contract or clause.(2) When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose and effect to aid the court in making the determination.

What is “unconscionable”?

Adhesion contracts

UCC § 2-302. Unconscionable contract or clause.

Official Comment:“The principle is one of the prevention of oppression and unfair surprise … and not of disturbance of allocation of risks because of superior bargaining power.”

Is this like German Civil Code?

Adhesion contracts

German Civil Code

§ 138 A legal transaction which is against public policy is void.

§ 242 The obligor must perform in a manner consistent with good faith taking into account accepted practice.

Is German Civil Code more plastic than UCC?

Adhesion contracts

German Standard Terms Act of 1976 Forbidden clauses (standardized consumer Ks)

Catalogue (including shifting burden of proof) Catch-all provision (party at “unfair disadvantage”)

Enforcement (consumer ombudsman) Standing: consumer groups and trade associations Non-mutual affirmative collateral estoppel

Where did this come from?

Adhesion contracts

Where do one-sided

standardized clauses

stand in Europe?

Adhesion contracts

Italy: Specified adhesion clauses (one-sided and standardized) void unless “specifically approved in writing” [sign here and here and here …]

France: Law of Scriveners allows only government to nullify “abusive contracts,” but French courts nullify other clauses and new law gives standing to consumer associations.

Adhesion contracts

EC: Directive on Unfair Terms in Consumer Contracts

• not individually negotiated• “significant imbalance” in

rights/obligations to detriment of consumer

• Annex lists terms regarded as “unfair”

• Member States must adopt “adequate and effective means” European contract law?

Adhesion contracts