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 CodeGerman 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 § (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.agreementgood faith

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.standard form 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 Sept Jan ,340 Sept ,201 Jan 19211,349 Sept ,175 Jan ,976 Sept ,381 Jan ,477 Sept ,439,000 Oct 2, ,631,749,000 Oct 9, ,868,950,000 Oct 16, ,969,072,000 Oct 23, ,160,552,882,000 Oct 30, ,347,070,000,000 Nov 5, ,700,000,000,000 Nov 30, ,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 bailees 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 § 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 contract 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 § 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.contract What is unconscionable?

Adhesion contracts UCC § 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