Adhesion contracts
 Adhesion contract
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Unilaterally drafted, standardized, one-sided
Issues: contract formation, interpretation
(contra preferentum), validity
 German cases
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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 Marks
to buy one ounce of gold
Jan 1919
Sept 1919
Jan 1920
Sept 1920
Jan 1921
Sept 1921
Jan 1922
Sept 1922
Jan 1923
Sept 1923
Oct 2, 1923
Oct 9, 1923
Oct 16, 1923
Oct 23, 1923
Oct 30, 1923
Nov 5, 1923
Nov 30, 1923
170
499
1,340
1,201
1,349
2,175
3,976
30,381
372,477
269,439,000
6,631,749,000
24,868,950,000
84,969,072,000
1,160,552,882,000
1,347,070,000,000
8,700,000,000,000
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
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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)
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Catalogue (including shifting burden of proof)
Catch-all provision (party at “unfair disadvantage”)
 Enforcement (consumer ombudsman)
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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