The Restatement of Consumer Contracts provides a systematic formulation of the common law rules guiding courts in resolving disputes over consumer contracts. These rules are distilled from the analysis of longstanding common law doctrines, as well as a careful reading of more recent leading court decisions, from which we elicit the governing principles. We clarify the policy goals underlying these principles, develop their conceptual implications, and restate them in a coherent manner.
In addition to this traditional ALI method, we conducted a secondary investigation—a type of “safety check”—to confirm that our principles are indeed robustly followed by the courts (including lower courts). To that end, we read the entire body of contract law decisions relating to consumer contracts which are made available in online and other databases. The results of this secondary methodology confirmed that the principles restated in the Restatement are indeed reflected in the vast majority of court decisions.
Our work has recently come under attack in two contributions to the Yale Journal on Regulation, questioning the validity of that secondary investigation. These contributions reread portions of the entire body of case law that informed our secondary research, and reached exactly the same qualitative results as we did, confirming the validity of the principles we restated.
It is important to repeat this last statement. Notwithstanding harsh rhetoric and the confrontational tone, the contributions found that the principles of the Restatement of Consumer Contracts are strongly supported by the body of existing case law. Any differences they identify in interpreting some specific cases do not affect the conclusions we draw. Let us briefly discuss these minor differences.
In the first contribution, Gregory Klass examines a single question: whether the claim in Comment 9 to Section 1(b) of the Restatement is empirically valid. The Comment explains the “Scope” rule of the Restatement. It says that an agreement between a business and a consumer over the consumer’s personal data could be treated as a consumer contract. The Comment thus instructs courts to apply the rules of the Restatement to scrutinize the formation, content, and consequences of privacy notices. The comment was based primarily on a basic and universal principle: contract law is content-neutral. An attempt to contract over data privacy should be treated as any other subject matter.
We confirmed the validity of this principle—that contract law applies to agreements over data—through the secondary investigation. We found, by one conservative count, 40 cases in which the courts addressed the question whether privacy notices could be enforced as contracts. In 35 out of the 40 cases, courts concluded that privacy notices could in principle give rise to contractual obligations. In several of these 35 cases, a contractual obligation did not form, because some of the conditions for the creation of a binding contract were not fulfilled. But in every one of these 35 cases courts either enforced the privacy terms as a consumer contract, or signaled their readiness to do so if the requirements of contract law were met.
In his contribution, Klass classifies some of the cases differently, and yet he firmly confirms both the substantive and empirical validity of Comment 9. On various dubious grounds, he narrows the list of relevant cases to 15. For example, Klass imagines that obiter dicta carry no valuable information about the common law and ought not be counted. He thus prefers to ignore a statement by a court that the privacy terms could form a binding contract when such a statement was not necessary for the holding and the final disposition of the case. We disagree with this premise, and we find it hard to believe that Klass himself takes it seriously. He is the co-author of an excellent casebook that teaches contract law to first year students and is replete with cases that show how the common law develops, in part, through obiter dicta.
Be that as it may, even under Klass’s puzzling selectivity, his analysis merely reinforces our conclusion. He finds that courts enforced privacy notices as contracts in 11 out of 15 cases (73%). In an offhand remark, Klass further notes that “[t]he claim that a consumer contract can include provisions related to the use of the consumer’s data is uncontroversial. Contract law is largely content neutral.” He further states, “there is no question that parties can contract over information generated during the transaction.” This is precisely the principle stated in Comment 9, and we take comfort in the fact that even a critic of the Restatement agrees with it, to the letter. We thus view the disagreement over which of the many cases are informative as a tempest in a teacup.
In a second contribution to the Yale Journal on Regulation, a group of scholars (“the group”) examines the rules of the Restatement that establish how standard contract terms are adopted into a consumer contract. The group’s criticism is aimed primarily at Section 2(a) of the Restatement, which states
“A standard contract term is adopted as part of a consumer contract if the consumer manifests assent to the transaction after receiving: (1) a reasonable notice of the standard contract term and of the intent to include the term as part of the consumer contract, and (2) a reasonable opportunity to review the standard contract term.
One of the primary applications of the principle stated in Section 2(a) arises in the context of what has come to be known as “clickwrap”—the online procedure in which consumers typically manifest assent by clicking “I agree.” If a clear notice alerts the consumer that the transaction will be governed by standard contract terms, and if these terms are available for review, the terms become part of the contract when the consumer clicks “I agree.” This principle is entirely uncontroversial. It embodies the longstanding rule of contract law that by manifesting assent to the transaction the party is accepting the terms of the offer, even if the terms are lengthy and complicated, as long as a reasonable opportunity to review them was afforded. Section 2(a) restates this basic tenet of contract law. We then confirmed via the secondary methodology that the application of this basic tenet to clickwraps has indeed garnered broad support in the case law. We found that if the conditions specified in Section 2(a) are met, clickwraps are always enforced absent any other fault, such as fraud or unconscionability.
The group criticizes our case selection, and advocates the use of a more restrictive sample. Again, we could take issue with their puzzling criteria for ignoring valuable judicial signals. But here too we take great comfort from the fact that the group’s findings categorically confirm the Restatement’s rule. The group shows that 89% of decisions in their favored sample enforce clickwraps, and that in the remainder the clickwraps were not enforced because of the failure to conform to the requirements of Section 2(a).
Separately, the group criticizes Section 3 of the Restatement, which governs the way consumer contracts may be modified. Nothing in the group’s critique suggests that the principles underlying Section 3—that a modification binds a consumer only if it is clearly presented and affords the consumer a reasonable opportunity to reject it—are wrong, or that they are ever rejected. The group proposes to ignore some case law that affirmed this principle, including credit card agreements that are subject to statutory law. We think such selectivity is misguided (violating the content-neutral principle of contract law). It may be that in a few cases courts apply business-friendly statutes and reach business-friendly outcomes, and that such outliers should not inform the general rule. But our secondary investigation distills the common law principles elaborated in the cases, even if some statutory law affected the ultimate dispositions. The black-letter rule in Section 3 ignores any pro-business statutory overlay and restates the core uncontroversial principle of the common law.
It is worth highlighting yet again that even under their selective sample of modification cases, the group’s analysis reaches the same conclusions as ours: courts enforce contractual modifications as long as the requirements of notice and opportunity to reject are met.
While we think the criticisms levied by Klass and the group against the principles of the Restatement are unfounded, we are pleased that our use of a secondary methodology to bolster the traditional legal analysis underlying this Restatement enabled such a lively and substantive exchange. That exchange helps us refine some minor and inconsequential errors in the secondary investigation (for example, a case that was mistakenly counted twice). More importantly, the exchange helps demonstrate the broad validity of our document as a true restatement of the law. It confirms that the relevant principles in Sections 1, 2 and 3 of the Restatement are widely followed by courts.
This post is part of a symposium on the Draft Restatement of the Law of Consumer Contracts. All of the posts in this symposium can be viewed here.
Oren Bar-Gill is the William J. Friedman and Alicia Townsend Friedman Professor of Law and Economics at Harvard Law School. Omri Ben-Shahar is the Leo and Eileen Herzel Professor of Law and the Kearney Director of the Coase-Sandor Institute for Law and Economics at University of Chicago Law School. Florencia Marotta-Wurgler is a professor of law at New York University School of Law and the director of NYU Women’s Leadership Network and the NYU Law Abroad in Buenos Aires.
 In the latest version of his critique, Klass claims that he does not attempt to distinguish between dicta and holding. And yet, surprisingly, his new “permissive” selection criterion produces the exact same 15 cases that he analyzed in his initial critique – the one that excluded dicta.