EULAs And The Theory of Standard Form Contracting

Richard Warner

The Current Situation

Courts routinely enforce End User License Agreements between a software manufacturer (Microsoft, Adobe, ProCD) and a consumer (you, me, Zeidenberg).

What is the answer to the “no offer and acceptance” argument?

To see the answer, first ask, Why don’t we read standard form contracts?

The Answer

Because we already know the terms are acceptable.

Seeing why this is true provides the answer to the “offer and acceptance” objection.

The place to begin is with the fact that contracting is a norm-governed activity.

Norms Defined

A norm is a sanction-supported behavioral regularity in a

group of people, where the regularity exists in part because each group

member thinks each group member ought to act in accord with that regularity.

An example: You enter a crowed elevator. Where should you

stand?

Contract Examples

“Do not deceive a party about a material element of the bargain.” A norm governing negotiation.

“Impose liability on the best cost-avoider.” A norm governing contractual terms. The refrigerator example.

“Sellers may disclaim consequential damages.”

Disclaiming Consequential Damages This is a sanction-supported regularity

sellers regularly disclaim consequential damages, and

courts regularly enforce the disclaimers. But do buyers think the ought to abide by it?

How could they? Most do not even know what it means.

Legally-Implemented Norms

People think that they ought to abide by the law.

The disclaimer of consequential damages is a legally enforceable provision,

So buyers think that they ought to abide by it.

Norm Consistent Terms = Acceptable Terms Assume the terms in a standard form contract

are consistent with a relevant norms. The buyer accepts and abides by the norms. Hence, the buyer thinks he or she ought to

accept and abide by norm consistent terms. To do otherwise is to do what the buyer thinks

he or she ought not to do.

Sellers Will Offer Norm-Consistent Terms But why will sellers offer norm-consistent terms? Because, in a sufficiently competitive market,

that is the way they maximize profits. The basic idea:

Buyers who detect a norm-violation will not, other things being equal, buy from sellers offering norm-inconsistent terms, and

Enough buyers will not buy that the lost profits are greater than any gain from norm-inconsistent terms.

The Offer and Acceptance Objection The pre-packaged, no-negotiation deal

contains acceptable terms, but Should we regard that deal as a contract? Where is the offer?

Offer Defined

An offer is a manifestation of a willingness to enter a bargain so made as to justify the offeree in thinking his or her assent will conclude the bargain.

Manifestation: If the buyer knows the terms are acceptable,

why not regard that as enough for a manifestation?

Similarly, why not regard the consumer as justified in thinking his or her buying the item concludes the bargain?

Freedom

There is a problem: contractual obligations are freely undertaken obligations.

How is the compelled choice involved in the no-negotiation contract a free choice.

The Cayman Islands example