The Problem with Standard Form Contracts

Many businesses use standard form contracts, pre-printed contracts filled with fine print, in transactions with individual consumers.  These contracts are usually “boilerplate,” “take-it-or-leave it,” non-negotiable contracts.

The problem presented by many of these contracts can be summed up as unequal bargaining power — between the consumer and the corporate entity that uses them.

Corporations use these contracts to have uniformity and efficiency by reducing the costs to them of negotiating with consumers on an individual basis.  Consumers sign these kinds of contracts routinely — usually never reading, much less understanding, the fine print they contain.  And there is the rub. 

The party with superior power — the corporate entity that drafts the contract — can use the fine print, coupled with the knowledge that the consumer rarely, if ever, reads the terms, to take advantage of the unsuspecting consumer in the underlying transaction.

Consumers often make purchases based on price and quality, but there are a number of other factors in the fine print of these transactions that merit consumer attention:  These provisions may, and often do, work against consumer interests.  Though some say consumers can always walk with their feet or dollars and choose to not engage in these transactions, often the consumer, having not read the fine print, is completely unaware of these provisions until the corporation tries to enforce them against the consumer.  Worse, often entire industries have contracts containing these unfair provisions, thereby leaving the consumer with no meaningful alternate choice.  Even worse, businesses often reserve for themselves the right to modify or change the terms of the contract, making comparison shopping pointless if the contract or the prospective contract is always subject to change.

To add insult to injury, these contracts often contain forced arbitration, venue and/or choice-of- law provisions, so resolution of disputes no longer even takes place in a public courtroom forum, but in a private, business-dominated industry of arbitrators, who are neither required to follow the rule of law, nor are subject to its oversight.  Contract law and a consumer’s day in court has been “privatized” to a process whose outcomes are often unknowable and unchallengeable.

Typical contract law is based on the idea of mutual commitment and assent to the terms of the deal.  As a consequence, courts impose a “duty to read” on the consumer and presume that the terms of the agreement signed have been agreed to between the parties to the contract.  Generally, courts are not inclined to find an equitable exception to imposing the terms of a contract that have been agreed to between the business and individual consumer, who is considered irresponsible for not having read the contract.  Exceptions, in the form of successful defenses against a contract, such as fraud, duress, or unconscionability are few and far between. 

But the modern-day reality with fine print in standard form contracts is that there is no mutuality of assent, and there is often no time for or inclination by the consumer to read the terms, or even an ability to cross comparison shop those terms.  And even if the consumer did try to comparison shop, it wouldn’t do much good if the sellers can always change their terms and insulate their provisions from meaningful judicial review.  This adds up to a fiction in the law of contracts and makes a mockery of the idea of consumer freedom in a free market.   

Citizen Works, a 501 (c) (3) nonprofit organization, and a number of volunteers and seasoned allies who contribute content, have incubated the Fair Contracts Project at Faircontracts.org to educate the public about unfair terms to consumers in the fine print of standard form contracts and some potential solutions.  We work to make standard form contracts fair, accessible, and understandable.  Please help us in this effort.  Thank you!