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Source link: http://archive.mises.org/9923/the-libertarian-view-on-fine-print-shrinkwrap-clickwrap/

The Libertarian View on Fine Print, Shrinkwrap, Clickwrap

May 8, 2009 by

The Techdirt post Court Rejects Online Terms Of Service That Reserve The Right To Change At Any Time spurred me to post a comment about this, collecting some of the thoughts I’ve had about such matters for a long time.

As I note there, my own theory of contract is presented in my article A Theory of Contracts: Binding Promises, Title Transfer, and Inalienability. And while I of course as a libertarian favor freedom of contract, I am leery of too formulaic or formalistic libertarian positions. Partly this stems from my growing aversion to “armchair” theorizing (see my post The Limits of Armchair Theorizing: The case of Threats). But as an example, and as I noted in the contract article, I disagree with putting so much stock in whether a communication is a “promise” or not (Rothbard, e.g., puts a bit too much emphasis on this, in my view). The question is what the parties meant by their communication–even if the word “promise” is used, this could be intended to effectuate a transfer of title. Another is, say, the over-emphasis on the notion of “incitement” by Rothbard and Block (as discussed in Causation and Aggression). They want to rule out “incitement” as a type of aggression in all cases; to my mind, it’s a more context-dependent determination. Maybe it is, maybe it isn’t.

A similar issue arises in the case of contracts. Many libertarians, often with only a crude understanding of the nature of contracts, just assume, Rand-like, some kind of mystical “power” to “bind” oneself by “a contract”. They tend also to equate contracts with a written agreement. [Note: See update below] They thus tend to think that “if it’s written in ink, it’s binding, no matter what”. To my mind, this is too formalistic. A writing is neither necessary nor sufficient to form a contract. Most contracts are not written. They may be oral. They do not even need to be verbal–I hand you a dollar, pointing to the newspaper; you take my dollar and give me the paper. A sale happens, nonverbally (no oral or written communication). And “what is written” is not necessarily dispositive. To my mind, a written agreement is only evidence of what the parties actually agreed to. But it is rebuttable. The written agreement may be very sparse: in which case in the case of disputes, there is no choice but to resort to “gap-fillers,” default rules, and the like. Or the agreement may contain ambiguities or even inconsistencies–this may require similar construction methods, or even invalidation of the agreement.

The agreement may not even be intended to be binding, such as in the case of a so-called “simulation” (a contract which, by mutual agreement, does not express the true intent of the parties; see my Civil Law to Common Law Dictionary, entry for “Simulation”; Louisiana Civil Code, arts. 2025-27).

Or there may be fraud or deception which nullifies the whole writing or requires certain provisions not to be enforced.

Given all this, in my view we should not just assume that “whatever is in writing” is part of a binding obligation or enforceable agreement. This bears on the issue of fine print, and so-called shrink-wrap and clickwrap agreements (incidentally the law of various countries on this issue is discussed in my book Online Contract Formation–which is not bedside reading, n.b.). Libertarians seem to just assume, too quickly in my view, that all such fine print should be enforceable. These assumptions seem to be made in the absence of the awareness of the nuances noted above.So one problem with click-wrap agreements, for example, is that there is (arguably) often no “meeting of the minds” on the fine print–and the vendor is fully aware of this. If the customers routinely just click the “I have read and agree to these terms” box but never do read it, and the vendor knows this, then it’s a sort of fiction to assume both sides have actually agreed on these terms. For example supposed buried in fine print for a contract for sale of a $20 software program is the provision, “Buyer agrees to give 50% of his income to Vendor for life.” Is this enforceable? Of course not. Why not? Because there was no agreement to this. So the “hidden” terms have to be in some sense reasonable, at the least. (Here, too, “inalienability” concerns may kick in–even if the party is fully aware he is signing away his life income, or his kidney, or life, say, this may not be enforceable for inalienability concerns–see, on this, the contract article noted above, plus my article Inalienability and Punishment.)

I am not saying that clickwrap and fine print is not enforceable–I’m just saying that the libertarian view on property rights and contracts does not require that we formalistically equate “the contract” with “the writing,” and it does not require we figure all this out from our armchairs. The libertarian view can recognize that contracts about consensual, intentional transfers of title; that manifesting such consent is a matter of communication; that making determinations about the nature of a contract, or title transfer, is necessarily a fact-specific, context-bound inquiry.

Update: I stumbled across some interesting language in an older (1825) version of the Louisiana Civil Codes, which beautifully supports what I have said many time to libertarian formalists and literalists who keep equating the contract with the writing:

Art. 1755.–The contract must not be confounded with the instrument in writing by which it is witnessed. The contract may subsist, although the written act may, for some defect, be declared void ; and the written act may be good and authentic, although the contract it witnesses be illegal. The contract itself is only void for some cause or defect determined by law.

I can’t find an analogue in the modern La. Civil Code (see Arts. 1906, 1907 etc.); this provision must have been removed at some point.

Update 2: See my post Masnick: Replying To An Email Does Not Create A Contract (And Does Not Require Walmart Pay $600 Billion).

{ 15 comments }

Carolus Petri May 8, 2009 at 5:49 pm

This is an excellent post by Mr. Kinsella!

I think it could be added, however, that no libertarian worth his salt ought ever to air an opinion on contracts without first having read Professor Randy E. Barnett’s most illuminating article “A Consent Theory of Contracts”, Columbia Law Review, vol. 86, no. 2 (March, 1986): 269–321, which is available on-line via http://www.randybarnett.com/pdf/consenttheory.pdf.

Mike Cuneo May 8, 2009 at 5:51 pm

I agree with most of this but the part about the fine print and both parties “agreeing to it” makes me question the theory behind what you’re saying.

Does this line of thinking work both ways?

For example, say the vendor is fully aware that the customers just click the “I Agree…” box without reading what’s actually there. And in that text were all the terms and conditions of, say, downloading an anti-virus program. However, the company makes promises in that text that cause it to lose money, for example people find a loophole in a “free trial” that allows them to sign up over and over. Is all of this now null and void because of a mistake on the vendor’s part? Clearly not reading the T/C is a mistake, one that I make every time I click, but I feel safe knowing that the minute someone does actually click and sign away half his income, it would be all over the news and I would then have to start reading more carefully. But to me, an agreement is an agreement, as long as no force or coercion is involved of course.

Raja May 8, 2009 at 8:06 pm

So, in effect, you are saying that if I click through the terms of use agreement without reading it (or the fine print), there has been no meeting of the minds and the contract should not be enforceable? But when you sign a contract (or click the button) do you not _explicitly_ agree that you have _read and understood_ the contract? If you have, in fact, not read and understood the contract then you have defrauded the vendor. So even if the fine print does say you owe the lender 50% of your future income — which, I agree, should not be enforceable — are you not responsible for making the vendor whole on any property he transfers to you upon signing the contract? Surely you don’t disagree?

So how does one extend this to non-property items such as software. How does one prevent users from violating their terms of use agreement on the technicality that they just clicked through it?

Stephan Kinsella May 8, 2009 at 8:25 pm

Carolus Petri: Re Barnett’s paper: I agree.

Mike Cuneo:
I’m not sure what you are asking. If you are asking for a definitive pronouncement from me, on an incomplete hypo-this is the problem I mentioned regarding armchair reasoning.

“But to me, an agreement is an agreement, as long as no force or coercion is involved of course.”

Well, yes, but the question is: what IS the agreement? My point is: you can’t just ASSUME it’s exactly equivalent to “the paper document”. That is just *evidence of* the parties’ intent.

Raja:

“So, in effect, you are saying that if I click through the terms of use agreement without reading it (or the fine print), there has been no meeting of the minds and the contract should not be enforceable? But when you sign a contract (or click the button) do you not _explicitly_ agree that you have _read and understood_ the contract? If you have, in fact, not read and understood the contract then you have defrauded the vendor. So even if the fine print does say you owe the lender 50% of your future income — which, I agree, should not be enforceable — are you not responsible for making the vendor whole on any property he transfers to you upon signing the contract? Surely you don’t disagree?”

If you are asking for a definitive pronouncement from me, on an incomplete hypo-this is the problem I mentioned regarding armchair reasoning.

Sovy Kurosei May 8, 2009 at 8:36 pm

EULAs (click-wrap) licenses were intended to protect the vendor from liability. It would be (or should be) impossible for the EULA to enforce a clause that allows the vendor to take half of the customer’s income because the vendor would not be able to prove that the person actually accepted the agreement or not. All they know is that in order to use the software the user has to accept the agreement. If the software is misused and the user ends up in trouble then the vendor isn’t liable.

Unfortunately the times are changing. A recent example would be Blizzard v Glider where Blizzard was able to use their EULA and TOS to put an injunction against Glider software. If I recall correctly the basis of the argument was that Blizzard licenses their software, and that if the player breaks the TOS by using botting software (Glider) then the user would be committing copyright infringement since they are not authorized to have a copy of World of Warcraft in their computer’s RAM.

Alex May 8, 2009 at 9:22 pm

Take the newspaper example one step further: vending machines. You put money into a slot, press two buttons, and product comes out. A perfectly valid contract with no interpersonal contact involved whatsoever.

P.M.Lawrence May 8, 2009 at 10:18 pm

“To my mind, a written agreement is only evidence of what the parties actually agreed to. But it is rebuttable.”

Contracts are generally read in the light of the “Parole Evidence Rule”, which basically states that oral matter may not amend written matter in a contract unless the written matter states that the oral matter is applicable. So oral matter could be used to clarify written matter, but not to modify it unless that possibility were spelled out in writing. And there are all sorts of issues to do with agreement by conduct as well, e.g. if a debtor started paying instalments with notes stating that was happening, and the creditor took the payments without clearly rejecting the implied instalment terms, then the creditor would have a hard time trying to get payment in full (having accepted the instalment scheme).

Mark Alger May 8, 2009 at 10:54 pm

My understanding of this may be primitive and naive, but I don’t see this as a problem with the contracts as they exist so much as with the law which allows a contract to be altered willy-nilly and unilaterally.

I see this as particularly so in the case of a credit card holder with a large balance. This person can be seen to be over a barrel and the alteration of the contract with the only option being to “pay up and walk” amounting to coercion.

And I see this as an abdication by the state of a fiduciary responsbility to prevent, obviate, or adjudicate fraud and coercion in private commercial transactions.

Most shrinkwrap and clickwrap EULA’s and TOS’s have provisions in them which permit the issuer to alter the terms — practically — ad lib. I can’t see this as being just in any way.

M

Stephan Kinsella May 8, 2009 at 11:24 pm

Just to clarify, as some seem to be missing the point. I am not saying any particular contract is invalid–in fact if anything I’m saying this is not a libertarian issue–libertarianism helps define the abstract principles of justice; but application is a practical, technical matter and very context-bound.

Second, I see no reason why two parties couldn’t agree to a contract that is amendable according to specified procedures–assuming this is really what the parties agreed to. I’m merely saying that the existence of a clause in the fine print is not definitive proof that this was actually agreed to.

Alexander S. Peak May 8, 2009 at 11:36 pm

Kinsella: “For example supposed buried in fine print for a contract for sale of a $20 software program is the provision, ‘Buyer agrees to give 50% of his income to Vendor for life.’ Is this enforceable? Of course not. Why not? Because there was no agreement to this.”

I’m not so sure that’s the reason we want to be giving for the non-enforceability of such a clause.

I have not read your article “Inalienability and Punishment,” but since I agree with you that this clause would not be enforceable even if the person signing the contract had read and understood the contract in full, I’m therefore inclined to suspect that whatever argument you present in the aforementioned article should suffice to explain why the 50% life income clause would not be enforceable, and therefore am further inclined to see no need to make the unnecessary jump of assuming that the lack of having read a contract implies any additional unenforceability above and beyond this.

My personal opinion on the matter at this time–and perhaps this is the/an argument you present in “Inalienability and Punishment”–is this: if you do not wish to surrender 50% of your income for the rest of your life, you don’t have to; all you have to do is return whatever scarce thing(s) you bought. If no scarce thing was purchased, you need not return anything.

My current inclination is to say that if a party agrees formally to a title-transfer, then she is bound to it, regardless of whether she read it, except in those cases where she would not be bound to it even if she did read it. If I see a well-rationed argument to the contrary, I’ll then reconsider.

Cheers,
Alex Peak

Stephan Kinsella May 8, 2009 at 11:48 pm

Alex, not sure if I agree with you about “just returning the scarce thing you got” to get out of a contract. I do agree that inalienability concerns may be the reason you get out of it in the case mentioned; or the contract principles I mentioned. YOu could even argue there is an implicit duty of good faith, that means that the vendor is implicitly promising that his fine-print terms are “reasonable” or “default/normal” ones, and if others are “snuck in” it’s a type of fraud.

The details are not important to me; this is for the legal system to slog out.

Stephan Kinsella May 9, 2009 at 12:03 am

Let me add here a couple of glosses on this. The following quote is taken from my article Knowledge, Calculation, Conflict, and Law:

Yet, Barnett does not provide a rigorous argument showing where are the exact limits of the ability to deduce concrete rules. He evidently feels that the more abstract principles can, for some reason, be established by armchair theorists. If denizens of the ivory tower can do this, why can they not deduce or establish more concrete rules by simply considering more and more contextual facts? In the
Roman law system—a somewhat decentralized legal system superior in many ways to the common law—Roman jurists (jurisconsults) helped develop the great body of Roman law by providing opinions on the best way to resolve disputes. These disputes were often purely hypothetical or imaginary cases, in which the jurists asked: “under such and such a possible or conceivable combination of circumstances, what would the law require?”25 It is conceivable that a large part or even all of the legal code existing in a given society can be “deduced” in this fashion, and then these rules applied like precedents to actual controversies as they arise. As a libertarian (and, I confess, a lawyer), I must say that I believe I would be more comfortable living under a set of concrete rules deduced by libertarian philosophers than the (perhaps more concrete) set of rules developed under the actual common law.

Still, Barnett’s argument in favor of a common-law system makes sense, even to libertarians who favor a deductive approach to rights (Hoppe 1989b, p. 131; Rothbard 1998; Kinsella 1997, pp. 607–45). Legal rules must be concrete in the sense that the rules must take into account the entire relevant factual context. Since there are an infinite number of factual situations that could exist in interactions between individuals, a process which focuses on actual cases or controversies is likely to produce the most “interesting” or useful rules.26 It probably makes little sense devoting scarce time and resources to developing legal precepts for imaginary or unrealistic scenarios. If nothing else, a common-law type system that develops and refines legal precepts as new cases arise serves as a sort of filter that selects which disputes (i.e., real, commonly-encountered ones) to devote attention to.

[26: This is analogous to Mises’s method selecting certain empirical assumptions (e.g., assuming there is money instead of barter) to develop “interesting” laws based on the fundamental axioms of praxeology, rather than irrelevant or uninteresting (though not invalid) laws.

For further discussion of the role of codes and jurists, see my Legislation and the Discovery of Law in a Free Society.

Martin OB May 9, 2009 at 12:02 pm

I pretty much agree with the author. I think the libertarian position about contracts, as opposed to the statist position, is that people should be free to reach agreements as they see fit, and the state should keep away as long as both remain happy with it.

Most of the time, none of the parties wants to break the agreement. Focusing on those problematic, relatively infrequent cases, while statists dispute people’s right to trade and relate to each other in their own terms (labor regulations, affirmative action and so on) is, in my opinion, a distraction.

Ant May 9, 2009 at 3:19 pm

take it to the courts to decide if a contract is right

filc August 26, 2009 at 3:50 pm

Seems to me most modern EULA’s, licenses agreements, and other various common forms of contractual agreements only exist because of the large influential play by the state.

In a true libertarian society with less state or no state many of your written contracts would not only be simplified on basic private property principles but other contractual agreements may just disseapear all together. As property transfers ownership liability goes along with it.

The responsibility then lies on the consumer to be a responsible consumer and purchase a quality good. Not to have the public bail them out when they got scammed for being negligent in researching whom the do business with.

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