Rights-Affecting Clauses and Consumer Contracts

-- By MikeSteinthal - 17 Feb 2025

The Legal Fiction of Mutual Assent

Contract law rests on the bedrock principle of mutual assent: that parties are legally bound by agreements they knowingly and intentionally enter into. Mutual assent is clearly present where sophisticated business-savvy parties negotiate and agonize over every contractual provision until a mutually acceptable document is produced. This dynamic bargaining process ensures that the final contract serves the interests of both parties. Otherwise, as economically rational profit-driven actors, they would not agree to it.

Most consumer contracts, particularly those accompanying commercial transactions performed online, are so-called “adhesion” contracts. When a consumer purchases a product or registers for an account, they usually must agree to the seller or provider’s terms and conditions. These terms are standardized and non-negotiable, and not a product of bargaining in any meaningful sense. The consumer must decide whether assenting to the terms presents a reason to not engage in the transaction altogether. Ideally, the consumer fully understands what the terms and conditions entail for their interests, and can decide on that basis whether or not to agree.

Here the law creates a “legal fiction,” an assertion accepted as true, though departing from reality, to achieve a particular goal in a legal matter. The law imagines that the user prints out every page of the terms and conditions, binds them together, and spends her afternoon reading every page. Only then does the user carefully evaluate if the contract is amenable to her interests, and only if it is, does she click “I accept.”

Nobody actually reads the terms and conditions. But for legal purposes, that doesn’t matter.

With this conception of user understanding in mind, mutual assent from the bargained-for consideration of sophisticated business entities context is translated to consumer adhesion contracts. In this way, the law ignores that consumers are not actually aware of what they are agreeing to and even if consumers were aware, unlike a corporation with a small village for a legal department, they have no meaningful ability to alter the terms.

Issues for Rights-Affecting Clauses

Consumers who haphazardly agree to the terms and conditions are not without any redress in the event that they find themselves entering litigation. Courts have developed doctrinal tools to combat exploitative terms, most importantly unconscionability and public policy. However, Courts hesitate to label terms “unconscionable” unless they are both severely procedurally and substantively unfair. As a result, most contract terms fall well short of what one would call unconscionable or contrary to public policy, and are therefore enforceable.

For most contractual clauses, that is not an issue. It is an issue for clauses that impact someone’s fundamental rights and means of redress, clauses that I will call “Rights-Affecting Clauses.”

Mandatory arbitration clauses exemplify this problem. Courts consistently deem mandatory arbitration clauses enforceable, and thereby conscionable, across legal contexts. These clauses impact a party’s means of redress and ability to vindicate their interests in court, and are materially different from other contractual boilerplate.

Rights-Affecting Clauses should be subject to a greater notice requirement than other clauses because of this material impact on fundamental rights.

Adapting FRCP 23(c)(2)(B) for Contracts

To bridge the gap between the fiction of assent and the reality of consumer contracting, courts should adopt a more rigorous notice standard when it comes to these Rights-Affecting Clauses.

I propose that Federal Rule of Civil Procedure 23(c)(2)(B)’s governance of notice to class members in certain class actions should serve as a model approach. Alongside requiring predominance, this rule requires that “a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.” It governs another context where individuals are uniquely unable to self-advocate, and in this way aligns with consumer adhesion contracts.

FRCP 23(c)(2)(B) notice for 23(b)(3) classes differs from other class actions because here the court must direct class members “the best notice that is practicable under the circumstances,” including individual notice when possible, and that the notice be in “plain, easily understood language.” For 23(b)(1) and (2) classes, the court may direct “appropriate notice.” This mandatory notification ensures that members of a certified class, whose legal rights will be affected by the ongoing suit, are aware of the action and have an opportunity to opt-out if they choose to.

This standard could be adapted for contracts by requiring that when a company seeks to bind consumers to a Rights-Affecting Clause–such as arbitration clauses, jury trial waivers, or class action waivers–it must give consumers clear, individualized, and understandable notice of the clause and its consequences. This would not ensure that assent to particularly consequential terms is meaningful.

To comply with this companies would need to adjust their practices to separate and highlight key contractual clauses. This could include writing the clause in large, concise, bold text, with a direct explanation of the clauses’ impact on personal rights. Additionally, companies could require a separate checkbox for agreement, or send follow-up notices via email or within online accounts.

Advantages of this Approach

This proposal does not suggest that consumers are only bound to what they actually read. This is not the triumph of the illiterate. Rather, this proposal attempts to align the legal system to reflect real-world contracting behavior and mirror heightened notice requirements in other areas of law where individuals are uniquely disadvantaged. This proposal has no impact on contractual clauses that do not affect the legal rights of individuals. If consumers still choose to assent to a mandatory arbitration clause, or any other Rights-Affecting Clause, then it is just as binding. The substantive change here is that the burden will now fall on the company, the party with outsized bargaining power, to exercise real effort into conveying adequate notice in contexts where consumer’s rights are at stake.

This approach better reflects interests in fundamental fairness and the prioritization of personal rights above economic interests in efficiency. If someone is going to oust themself from court, they should know they are doing so.

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