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(2109)
ARTICLE
INTUITIVE FORMALISM IN CONTRACT
TESS WILKINSON-RYAN
†
INTRODUCTION ............................................................................ 2109
I.
CONTRACTS OF ADHESION AND THE NEW OLD
D
OCTRINALISM ....................................................................... 2111
II.
LAY PERCEPTIONS OF CONTRACT LAW ..................................... 2114
A. Social Science as Legal Realism ...................................................... 2115
1. Social Enforcement ............................................................... 2117
2. Reciprocity and Fairness ...................................................... 2118
3. Promise-keeping .................................................................. 2118
B. Doctrinalism and Realism in the Age of Boilerplate .......................... 2119
1. Contracting is Signing on the Dotted Line ........................... 2120
2. Contract Enforcement is Specic Enforcement of
All the Terms ................................................................... 2122
III.
VIGNETTE STUDY: EFFECTS OF FORMALITY ON
W
ILLINGNESS TO BREACH ...................................................... 2123
IV.
DISCUSSION AND IMPLICATIONS ............................................. 2126
C
ONCLUSION ................................................................................ 2129
I
NTRODUCTION
This Article starts with the proposition that most American contracting
is consumer contracting, posits that consumer contracting has particular and
even peculiar doctrinal features, and concludes that these features dominate
the lay understanding of contract law. Contracts of adhesion constitute the
bulk of consumer experience with contract law. It is not hard to see that
someone discerning the nature of contract law from a sample composed
†
Assistant Professor of Law and Psychology, University of Pennsylvania Law School.
2110 University of Pennsylvania Law Review [Vol. 163: 2109
almost entirely of boilerplate terms and conditions would come quickly to
the conclusion that contract law is highly formal.
Within the realm of potentially enforceable deals (i.e., those that are
supported by consideration and not illegal or unconscionable), modern
contract doctrine upholds agreements when the parties have objectively
manifested assent. This is the contract law of the rst-year Contracts
course, and it is, more or less, why contracts existed in the cases Hadley v.
Baxendale,
1
Hawkins v. McGee,
2
and Embry v. Hargadine, McKittrick Dry
Goods Co.
3
These three canonical cases each involve oral manifestations of
assent: respectively, the contracts are based on the carrier’s promise that the
crankshaft would be delivered by noon the next day;
4
the doctor’s promise
of a one-hundred percent good hand;
5
and the employer’s response to his
anxious employee, “You’re alright. Go get your men out.”
6
For everyone
who knows the doctrine of assent, these are relatively easy cases for nding
contracts, because the evidence suggests that the parties, in fact,
communicated to each other their agreement. However, these cases might
startle a large percentage of the nonattorney population, for the simple
reason that they are oral and not written contracts.
What accounts for this misperception of contract law? Americans are not
contract naïfs. On the contrary, most people enter into numerous legally
binding agreements every year, if not every month or week. These are the
agreements we make with Amazon, PayPal, Comcast, Apple, AT&T, and
Visa, to name a few—in other words, these are the contracts we enter into
regularly as consumers. Consumer contracts share key features: they are
formal, assent is memorialized (either by signature or by clicking “I agree”),
parties neither negotiate nor read their terms, and they are almost
universally enforceable and, when litigated, enforced. This is the contract
law that individuals encounter every day.
As such, perhaps we should not be surprised that this is what most
people think that contract law is. Emerging evidence indicates that most
people think contracting means signing the paperwork and that contract law
is about the form of consent rather than the content to which parties are
consenting.
7
This “intuitive formalism” deserves our empirical and
1
(1854) 156 Eng. Rep. 145 (L.R. Exch.).
2
146 A. 641 (N.H. 1929).
3
105 S.W. 777 (Mo. Ct. App. 1907).
4
Hadley, 156 Eng. Rep. at 147.
5
Hawkins, 146 A. at 643.
6
Embry, 105 S.W. at 777.
7
See, e.g., Tess Wilkinson-Ryan & David A. Homan, The Common Sense of Contract
Formation, 67 S
TAN. L. REV. (forthcoming 2015) (manuscript at 2) (conducting questionnaire
2015] Intuitive Formalism in Contract 2111
normative attention because it has real implications for how consumers
behave in their deals and how they interact with their legal system.
This Article proceeds as follows. In Part I, I argue that the doctrines
around contracts of adhesion have been impervious to the facts of our
changing contractual culture and that we might think of them as a triumph
of doctrinalism over realism. In Part II, I lay out the evidence for an
intuitive formalism, a set of common assumptions that form contracts are
good prototypes for what contract law is about more generally. In Part III, I
present a new questionnaire study as part of a larger consideration of how
formalist intuitions might aect consumer behavior.
I. C
ONTRACTS OF ADHESION AND THE NEW OLD DOCTRINALISM
The question of whether or not we are in the midst of a “doctrinal”
moment is a complicated one, in part because the answer must rst stipulate
the doctrine being discussed. For example, the defenses to contract override
the doctrinal core of contract formation, but they are, of course, doctrines
themselves. If by Doctrinalism we mean rule-boundedness, even rigidity,
then the duty to read form contracts is a prototypical case. Many
contractual disputes involve tough calls in which the rule is not
informative—much less decisive—leaving courts to work through dicult
questions of equity. But the duty to read is dierent: contract doctrine takes
the clear position that individuals are bound by the boilerplate terms within
their consumer contracts whether they have read them or not.
8
Like other areas of law, contract law makes assumptions about what its
subjects are like—what they could have foreseen, what they probably meant
by their terms, and which remedies they would have chosen had they
specied. This makes some doctrines frustratingly indeterminate. For
example, how can we decide with condence what people mean by
“chicken”
9
or whether they ought to know that a delayed delivery will result
in a whole factory shutting down?
10
Perhaps for good reason, these kinds of
studies of commonsense approaches to contract formation to survey intuitions about what the law
of formations is and shed light on the relationship between formation and obligation).
8
See SAMUEL WILLISTON & RICHARD A. LORD, A TREATISE ON THE LAW OF
CONTRACTS § 70:113 (4th ed. 2003) (articulating the rule that ignorance of a contract’s terms is
not a defense).
9
See generally Frigaliment Imp. Co. v. B.N.S. Int’l Sales Corp., 190 F. Supp. 116 (S.D.N.Y.
1960) (resolving ambiguity in the term “chicken” in favor of the defendants who delivered
“stewing chicken” instead of “young chicken”).
10
See Hadley v. Baxendale, (1854) 156 Eng. Rep. 145 (L.R. Exch.) (holding that the damages
incurred when the delayed delivery caused a whole factory to shut down were not foreseeable to
the defendant).
2112 University of Pennsylvania Law Review [Vol. 163: 2109
reasoning-intensive problems are used to teach contract law, a forum in
which the task at hand is largely about developing good legal judgment.
But some of the highest-stakes questions from a policy standpoint are
clearly about unread boilerplate. The problem of ne print implicates
doctrines that are remarkably resistant to realistic conceptions of human
beings and their social worlds. Doctrine—and, indeed, Doctrinalism—is
alive and well in the context of adhesive contracts. The enforceability of
unread terms is applicable across the board, across contracts contexts, and
with almost no exceptions. As Professors Ayres and Schwartz have put it,
“The duty to read doctrine is contract law’s analog to the assumption of risk
doctrine in tort law. A buyer who could have read but did not assumes the
risk of being bound by any unfavorable terms.”
11
Whether or not a party
had the ability to read a contract is essentially a theoretical inquiry,
uninformed by evidence of bounded rationality or even the limited number
of hours in a day.
Broadly speaking, the upshot for legal scholarship of cognitive
psychology research is the realization that human cognition is a limited
resource.
12
If this unassailable empirical reality has natural doctrinal
implications for any area of private law, it is surely boilerplate.
Comprehending ne print requires attention and high-level information
processing. It is tempting to think that attention is an easy problem to
solve, insofar as it is subject to the conscious will of the individual.
Information processing abilities, on the other hand, may be constrained by
lack of education or intellectual aptitude, factors not in the control of the
reader. In fact, though, comprehensibility is a problem that has largely been
addressed or, at the very least, could be addressed with some investment. In
many contexts—informed consent, credit contracts, mortgage lending—
contract language is calibrated to be readable by consumers with a junior
high school education.
13
Generally speaking, the crux of an unexpectedly
burdensome term is not a Williams vs. Walker-Thomas Furniture Co. situation
11
Ian Ayres & Alan Schwartz, The No-Reading Problem in Consumer Contract Law, 66 STAN.
L. REV. 545, 549 (2014).
12
Herbert A. Simon, A Behavioral Model of Rational Choice, 69 Q.J. ECON. 99, 101 (1955)
(“Because of the psychological limits of the organism . . . actual human rationality-striving can at
best be an extremely crude and simplied approximation to the kind of global rationality that is
implied, for example, by game-theoretical models.”).
13
See, e.g., Informed Consent Guidance—How to Prepare a Readable Consent Form, JOHNS
HOPKINS MED. (Aug. 2007), http://www.hopkinsmedicine.org/institutional_review_board/guidelines_
policies/guidelines/informed_consent_ii.html (recommending that the reading level of a document
used for informed consent not exceed an eighth grade level), archived at http://perma.cc/4YLZ-
BYWH.
2015] Intuitive Formalism in Contract 2113
of a dense, complicated text.
14
The bigger and more intractable problem in
modern consumer contracting is attention.
15
It is usually true that parties
could have paid attention to any particular clause or agreement—but it is
not true that they could have attended to all of the available boilerplate, or
at least not if they also had to conduct other life activities. As Professors
Ben-Shahar and Schneider have argued so pointedly, disclosures and ne
print confront us at every turn.
16
They are on the physical products we buy,
the buildings we enter, the songs we download, the healthcare we consume,
and every nancial transaction we make.
In the meantime, there is widespread recognition of non-readership
even within the doctrinal scholarship and commentary. Empirical studies
and common sense tell us that non-readership is the state of the world.
17
The Restatement comments to section 211, for example, defend the duty to
read by arguing the (surely empirical) proposition that although “customers
do not in fact ordinarily understand or even read the standard terms
. . . they understand that they are assenting to the terms not read or not
understood, subject to such limitations as the law may impose.”
18
The normative and practical implications of non-readership are deeply
contested. A law and economics approach claims that as long as some
consumers are attending to terms, rms will compete on terms and thus,
terms will not be overly biased toward rms.
19
Even a traditional relational
contracts argument would say that the ne print is irrelevant because the
parties will be constrained by their preferences to remain on good terms
14
See 350 F.2d 445, 447 (D.C. Cir. 1965) (providing that due to the obscure provision in
question “the debt incurred at the time of purchase of each item was secured by the right to
repossess all the items previously purchased by the same purchaser . . .”).
15
See Omri Ben-Shahar & Carl E. Schneider, The Failure of Mandated Disclosure, 159 U. PA.
L. REV. 647, 687-89 (2011) (discussing the disclosure overload problem which posits that the
availability of too much information can actually impede understanding).
16
Id. at 651.
17
See Florencia Marotta-Wurgler & Robert Taylor, Set in Stone? Change and Innovation in
Consumer Standard-Form Contracts, 88 N.Y.U.
L. REV. 240, 243 (2013) (explaining that “contracts
. . . are rarely read by consumers”); Todd D. Rako, Commentary, The Law and Sociology of
Boilerplate, 104 M
ICH. L. REV. 1235, 1235 (2006) (starting from the presumption that consumers
do not play a role in how boilerplate terms are written).
18
RESTATEMENT (SECOND) OF CONTRACTS § 211 cmt. b (1981).
19
Alan Schwartz & Louis L. Wilde, Intervening in Markets on the Basis of Imperfect
Information: A Legal and Economic Analysis, 127 U.
PA. L. REV. 630, 638 (1979) (arguing that
“persons who search [for terms] sometimes protect nonsearchers from overreaching rms”). Of
course, in some contexts, there is scant evidence that any consumers are reading contracts in a
meaningful way. See, e.g., Marotta-Wurgler & Taylor, supra note 17, at 243 n.8 (citing research
indicating that only about one in one thousand online shoppers read standard terms).
2114 University of Pennsylvania Law Review [Vol. 163: 2109
with one another and to avoid negative reputation eects.
20
There are also
theoretical justications for enforcing unread terms in the context of very
low-probability readership. Such arguments rest on the notion that as long
as there is an opportunity to read, consumers may be understood to have
consented to the risk of the terms.
21
Naturally, this understanding of the consumer’s obligation to discover
terms has implications for the operation of the unconscionability doctrine—
namely, that it rarely oers a solution to aggrieved consumers. Unexpected
clauses embedded in lengthy boilerplate are routinely upheld, unless there is
a legislative response. Take, for example, three terms: universal default
clauses in credit card contracts, ood exclusions in Gulf Coast home
insurance policies, and prepayment penalties in subprime mortgage
contracts. All of these might seem to be hard cases, both because of the
bargaining power asymmetries and because the terms are outside of what
the average consumer expects. But as long as the terms were spelled out in
plain language in the contract and there is a duty to read, the case for
unconscionability is a very hard one.
22
Thus, this appears to be an area of
contract law in which the doctrine explicitly rejects the challenge from
social science and chooses the bright-line rule instead.
II. L
AY PERCEPTIONS OF CONTRACT LAW
Most nonattorneys who participate in contracts do so without formal
education in contract law. Nonetheless, people do not, on the whole, create
new forms of promissory obligations or novel formalities. Indeed, most
people have a general sense of what it means to make a contract—signing a
document—and similarly, a general sense that the law of contracts is all
about policing assent to be bound rather than the content of the
agreement.
23
If we think that individuals learn from their environments,
20
See, e.g., Stewart Macaulay, Non-Contractual Relations in Business: A Preliminary Study, 28
A
M. SOCIOLOGICAL REV. 55, 63 (1963) (describing evidence that repeat players in commercial
transactions preferred to ignore or overlook contract terms in favor of renegotiation in order to
preserve an ongoing relationship).
21
See, e.g., KARL N. LLEWELLYN, THE COMMON LAW TRADITION: DECIDING
APPEALS 370 (1960) (arguing that although specic assent may be absent, there is blanket assent
to boilerplate terms that are not “unreasonable or indecent”).
22
See, e.g., Tess Wilkinson-Ryan, A Psychological Account of Consent to Fine Print, 99 IOWA L.
REV. 1745, 1754 (2013) (citing examples of sympathetic yet easy cases in which readership is
assumed).
23
See David A. Homan & Tess Wilkinson-Ryan, The Psychology of Contract Precautions, 80
U.
CHI. L. REV. 395, 418-27 (2013) (exploring the moral intuition behind lay people’s
understanding of what it means to be in a contractual relationship). See generally Tess Wilkinson-
Ryan & Jonathan Baron, The Eect of Conicting Moral and Legal Rules on Bargaining Behavior: The
2015] Intuitive Formalism in Contract 2115
this is not surprising. Most contracts are contracts of adhesion, written to
cover every possible base and requiring not just assent, but documented
assent (by signing or clicking “I agree”).
24
Indeed, when contracts have
particularly high stakes, as with the purchase of a home, a notary is often
required to verify the manifestation of assent.
25
The popular conception of a
court’s role in enforcing contracts is that the judge assesses the evidence of a
contract’s existence, and, if such proof exists, makes the breaching party
perform. Yet evidence from experimental psychology and economics
suggests that legal enforcement is often beside the point, because people
take their promissory obligations so seriously that they essentially self-
enforce.
26
In this Part, I rst consider moral psychology as a component of
realist challenges to contract doctrine and then oer a counterpoint in the
form of evidence that parties are often surprisingly formalist.
A. Social Science as Legal Realism
Behavioral decision research has been accused of being “the new legal
realism.”
27
Karl Llewellyn’s dark observation that “our government is not a
government of laws, but one of laws through men”
28
was a critique of
judicial decisionmaking that had potentially devastating implications for the
rule of law. Llewellyn’s view that law is often so open or indeterminate that
a judge could often choose his or her favorite among dierent legally
plausible outcomes led to increasing interest in the features of the judge
rather than the dispute itself. The judge’s “personality”—presumably some
combination of his or her preferences, beliefs, and group aliations—was
posited as the true source of judicial behavior.
29
The original formulations
Case of No-Fault Divorce, 37 J. LEGAL STUD. 315 (2008) (studying moral intuitions in the context
of divorce).
24
See Todd D. Rako, Contracts of Adhesion: An Essay in Reconstruction, 96 HARV. L. REV.
1173, 1186-87 n.50 (1983) (discussing the meaning of “assent”).
25
See, e.g., Eason v. Bynon, 781 So. 2d 238, 240-41 (Ala. Civ. App. 2000) (holding that “[i]f a
notary public does not witness the signatures of the mortgagors, is not in the place where the
mortgagors sign the mortgage, does not see or speak to the mortgagors when they sign the
mortgage, and the mortgagors do not acknowledge to the notary that they executed the mortgage,
the mortgage is invalid”).
26
See, e.g., Tess Wilkinson-Ryan, Incentives to Breach, 17 AM. L. ECON. REV. 290, 306
(2015) (nding a reluctance to break a contract in both laboratory and vignette studies, even when
breach was the protable choice).
27
See, e.g., Thomas J. Miles & Cass R. Sunstein, The New Legal Realism, 75 U. CHI. L. REV.
831, 834 (2008) (“We believe that much of the emerging empirical work on judicial behavior is
best understood as a new generation of legal realism.”).
28
Karl N. Llewellyn, Some Realism about Realism—Responding to Dean Pound, 44 HARV. L.
REV. 1222, 1243 (1931).
29
Id. at 1242-43.
2116 University of Pennsylvania Law Review [Vol. 163: 2109
of Legal Realism suggested that judicial behavior was either impossible to
predict (insofar as decisions relied not on the law but on the unobservable
internal state of the judge) or entirely predictable once the judge’s politics
were known.
30
More recently, the “new Legal Realism” depends on the systematic use
of empirical research methods to test the constituent hypotheses of the
theory of “laws through men.”
31
In contract law, while we might critique
judicial decisionmaking as a function of judicial politics or preferences,
perhaps the more interesting set of inquiries has been how these laws
through men operate within private legal decisionmaking. There is growing
recognition in contracts scholarship that private individuals often make and
enforce their own legal regimes, from Robert Ellickson’s study of rural
landowners in Shasta County
32
to Lisa Bernstein’s report on
extracontractual agreements in the diamond trade
33
and Stewart Macaulay’s
descriptions of dealmaking by handshake among Wisconsin businessmen in
the 1960s.
34
But these examples are really just the most explicit and visible.
In fact, the overwhelming majority of contracts are only nominally subject
to contract law, because the stakes are almost always much too small to
make the expected value of litigation positive and, to some extent, because
existing informal enforcement makes legal enforcement redundant.
Perhaps because behavioral law and economics has positioned itself as a
challenge to rational actor theory, many of its best known and most studied
phenomena focus on the central importance of informal social and
community norms and internalized moral commitments and preferences in
legal decisionmaking.
35
Psychologists working in this area are often just
30
Id.
31
See, e.g., Christine Jolls & Cass R. Sunstein, The Law of Implicit Bias, 94 CALIF. L. REV.
969, 976-80, 991-93 (2006) (discussing results of the Implicit Association Test, which nds that
most people have an implicit and unconscious bias against members of traditionally disadvantaged
groups, and their implications for antidiscrimination laws). See generally Miles & Sunstein, supra
note 27 (dening the “New Legal Realism” as an eort to identify empirically the sources of
judicial decisions, and discussing some of the results).
32
See generally Robert C. Ellickson, Of Coase and Cattle: Dispute Resolution Among Neighbors in
Shasta County, 38 S
TAN. L. REV. 623 (1986) (investigating how rural landowners in Shasta
County, California, resolve disputes arising from trespass by livestock).
33
See generally Lisa Bernstein, Opting Out of the Legal System: Extralegal Contractual Relations
in the Diamond Industry, 21 J.
LEGAL STUD. 115 (1992) (detailing how “the diamond industry has
systematically rejected state-created law,” and instead “the sophisticated traders who dominate the
industry have developed an elaborate, internal set of rules”).
34
See Macaulay, supra note 20, at 58 (discussing how “[b]usinessmen often prefer to rely on
‘a man’s word’ in a brief letter, a handshake, or ‘common honesty and decency’—even when the
transaction involves exposure to serious risks”).
35
See, e.g., Ernst Fehr & Simon Gachter, Fairness and Retaliation: The Economics of Reciprocity,
J.
ECON. PERSP., Summer 2000, at 159, 167 (reporting, in the context of economics games
2015] Intuitive Formalism in Contract 2117
trying to document that people have preferences for more than material
wealth or, indeed, preferences for outcomes that do not even appear to have
any concrete eects on the decisionmaker at all—that is, preferences for
other people’s outcomes.
36
In particular, three strands of ndings have
emerged: (1) social enforcement (reputation eects), (2) reciprocity and
fairness, and (3) the internalized moral rule of promise-keeping.
1. Social Enforcement
Stewart Macaulay brought sociological insights to bear on commercial
contracting, interviewing a large number of businessmen about their
contracting practices.
37
His ndings sparked fty years of research
developing a relational theory of contracts. Relational contract theory posits
that humans engage in exchanges in a social context and that this social
context encourages, or even requires, particular “categories of behavior”—
namely, reciprocity and solidarity.
38
Enormous practical implications follow
from this rather abstract premise. If individuals care about their
relationships with their counterparties—especially counterparties with
whom they expect to interact repeatedly over time either in commercial or
social settings—it is the norms and rhythms of their relationships, and not
the law of contracts, that will guide the parties’ choices. As one Macaulay
interviewee remarked, “You don’t read legalistic contract clauses at each
other if you want to do business again. One doesn’t run to lawyers if he
wants to stay in business because one must behave decently.”
39
The social
enforcement theory therefore suggests a very strong role for reputation
eects and what we might think of as social costs in deterring breach.
demonstrating altruistic preferences, the prevalence of norm-driven behavior in the workplace, in
property disputes, in tax evasion, in political attitudes, in voting behavior, and in criminal
activity).
36
See, e.g., Jonathan Baron, Value Analysis of Political Behavior—Self-interested : Moralistic ::
Altruistic : Moral, 151 U.
PA. L. REV. 1135, 1155 (2003) (describing “moralistic goals” as goals we
have for others and showing experimental evidence that, for example, “some people are willing to
impose their allocation judgments on others, even when it is clear that the consequences for others
are worse and that the others do not favor the allocations in question”).
37
Macaulay, supra note 20, at 55 (“The primary research technique involved interviewing 68
businessmen and lawyers representing 43 companies and six law rms.”).
38
Ian R. Macneil, Relational Contract Theory as Sociology: A Reply to Professors Lindenberg and
de Vos, 143 J.
INST. & THEOR. ECON. 272, 274 (1987).
39
See Macaulay, supra note 20, at 61.
2118 University of Pennsylvania Law Review [Vol. 163: 2109
2. Reciprocity and Fairness
Even without external sanctions, however informal, many people will
choose to perform their contracts out of a sense of generosity or, at least, a
preference for reciprocal generosity when one’s counterparty has shown
generosity rst.
40
This is the nding of the classic “Trust Game,” an
experiment in which a player in Room A is given money and oered the
chance to send some of it to a partner in Room B.
41
The player in Room B
receives triple the amount sent and is then given an opportunity to send
some back to the original “investor” in Room A.
42
Defying the equilibrium
prediction, most of the investors in Room A send money,
43
and most of
their partners send back enough to make a positive return on investment.
44
In the contracts context, this has clear implications: some would-be
breachers will perform, at a cost to themselves, because they feel obligated
to reciprocate the trusting or generous behavior of the other party. The
promisee may have already actually performed, but it may also be that
performing is a way of reciprocating the original promisor’s generous
behavior.
3. Promise-keeping
Finally, there appears to be a strong moral norm of promise-keeping. In
study after study, subjects show preferences for performing tasks that they
have manifested assent to do—and for punishing violators of that norm.
Macaulay was the rst to document this strong commitment to keeping
one’s word, citing the frequent admonition that a man’s handshake is his
bond.
45
In early public goods games, Robyn Dawes and Richard Thaler
observed that the form of “cheap talk” most likely to predict pro-social
40
See generally Ernst Fehr et al., Reciprocity as a Contract Enforcement Device: Experimental
Evidence, 65 E
CONOMETRICA 833 (1997) (exploring reciprocal motivations as they relate to the
enforcement of contracts).
41
See Joyce Berg et al., Trust, Reciprocity, and Social History, 10 GAMES & ECON. BEHAV.
122, 123 (1995) (explaining the rules of the “Trust Game”).
42
See id. (further describing the game scenario).
43
Id. at 123 (“The unique Nash equilibrium prediction for this game, with perfect information,
is to send zero money. This prediction is rejected in our rst . . . treatment where 30 of 32 room A
subjects sent money . . . .”).
44
Id. at 131, 135 (noting that in the no history treatment, “11 of the same 28 subjects returned
more than their counterpart sent, resulting in positive net returns . . . . [In the social history
treatment,] 13 of the same 24 subjects returned more than their counterpart[] sent[,] resulting in
positive net returns”).
45
Macaulay, supra note 20, at 58.
2015] Intuitive Formalism in Contract 2119
behavior was the exchange of promises.
46
In recent work, I have found that
subjects are willing to give up substantial payos in a lab game in order to
avoid breaking a deal.
47
Similarly, Zev Eigen has found that subjects
confronted with a clearly unfair deal after they have promised to see it
through will go to surprising lengths to perform.
48
Some contracts scholars,
most famously Oliver Wendell Holmes, have argued that contracts are only
a promise to perform or pay.
49
In such a world, all contracts are option
contracts. More recently, Steve Shavell has made a similar argument based
on data from original surveys, nding that the moral promise within the
contract is one to perform only as long as performance is ecient.
50
But
there is evidence from a variety of questionnaire studies that many people
view the promise to perform as a promise to do a particular thing. While
there may be informal mitigating conditions (e.g., the cost of performance
becoming unreasonable), subjects rarely view the fear of missing a protable
opportunity as a morally valid reason to pay money damages rather than
perform.
51
B. Doctrinalism and Realism in the Age of Boilerplate
Given the body of evidence showing greater-than-expected levels of
performance even when deals are extra-contractual, informal, or just
unprotable, we may be tempted to think that the role of contract doctrine
46
A public goods game is an experimental economics game in which players are each
allocated small sums and then oered the possibility of increasing their payos by cooperating
with other players. See Robyn M. Dawes & Richard H. Thaler, Anomalies: Cooperation, J.
ECON.
PERSP., Summer 1988, at 187, 195 (“In such groups with universal promising, the rate of
cooperation was substantially higher than in other groups.”).
47
See Tess Wilkinson-Ryan, Do Liquidated Damages Encourage Breach? A Psychological
Experiment, 108 M
ICH. L. REV. 633, 663-64 (2010) (discussing subjects’ diering attitudes
towards breach, depending on whether a liquidated damages clause was present in the contract).
48
Zev J. Eigen, When and Why Individuals Obey Contracts: Experimental Evidence of Consent,
Compliance, Promise, and Performance, 41 J.
LEGAL STUD. 67, 87 (2012) (“When subjects saw and
actively selected the term obligating them to perform the undesirable task, they were signicantly
more likely to perform that task than when they had no such choice and when there was no
consent at all.”).
49
O. W. Holmes, The Path of the Law, 10 HARV. L. REV. 457, 462 (1897) (“The duty to keep
a contract at common law means a prediction that you must pay damages if you do not keep it,—
and nothing else.”).
50
Steven Shavell, Is Breach of Contract Immoral?, 56 EMORY L.J. 439, 460 (2006)
(“[C]ontracts are to an important extent incomplete promises and . . . the morality of promise
keeping does not imply that performance should always occur.”).
51
See generally Steven Shavell, Why Breach of Contract May Not Be Immoral Given the
Incompleteness of Contracts, 107 M
ICH. L. REV. 1569 (2009) (acknowledging the widely held belief
that breach of contract is immoral, but arguing that may not always be the case given that
contracts are incomplete and cannot cover every contingency).
2120 University of Pennsylvania Law Review [Vol. 163: 2109
in small-stakes transactions is minimal. However, the fact that most
contracting in America consists of consumer contracts that are uniformly
contracts of adhesion casts doubt on such a conclusion. This has a number
of implications for the psychology of promissory obligations. Perhaps most
obviously, it means that only one party is a natural person to whom it is
reasonable to attribute psychological phenomena of any description.
Furthermore, even if we focus entirely on the consumer, we may still doubt
that the kinds of preferences and norms that inhere when one’s
counterparty is, say, a local business, would play an important role in a
contract with a remote, faceless entity—indeed, possibly an entity that has
already engendered some ill will (e.g., Comcast or Countrywide). In fact, in
some relatively high-stakes contexts, survey evidence suggests that this kind
of negative reciprocity has behavioral eects.
52
So we might want to
question the role of informal norms in consumer contracting at least in part
because it is not always clear how the morality of promissory obligations
applies in consumer–rm contexts.
The focus of this Article, though, is not the nature of the parties, but
rather the nature of the contracting process. If we think that people will
perform their promissory obligations for reasons entirely apart from legal
enforceability, it is easy to underestimate the central psychological place of
a formal contract. In fact, there is a growing body of literature showing a
rather formal, even rigid, interpretation of contract law.
1. Contracting is Signing on the Dotted Line
In a previous study, David Homan and I surveyed the general
population for their views on how contracts are formed, with attention to
some of the more controversial or esoteric rules.
53
We found, not
surprisingly, that people do not intuit their way to the Mailbox Rule and
that paying for a good is often identied as the moment of formation.
54
We
predicted, and found, that subjects would nd the signing of a document
particularly salient. What was less expected was that subjects adhered to a
sort of signature rule well beyond its utility as a heuristic.
55
In a scenario
52
See Tess Wilkinson-Ryan, Breaching the Mortgage Contract: The Behavioral Economics of
Strategic Default, 64 V
AND. L. REV. 1547, 1569 (2011) (presenting survey data that shows that
“moral imperatives of promise keeping or debt repayment diminish when citizens perceive that
banks are getting away with selsh behavior while ordinary people are being held to their
promises”).
53
Wilkinson-Ryan & Homan, supra note 7.
54
Id. at 17.
55
Id. at 26 (presenting a tentative conclusion that people view thir legal obligations as heavily
dependent on formal manifestation of assent via signature).
2015] Intuitive Formalism in Contract 2121
describing a home renovation contract, subjects learned that the contractor
instructed the homeowner to “call me at my oce to accept.”
56
Nonetheless,
when subjects learned that the homeowner, after the initial meeting but
before calling the contractor, signed the contract while alone in his home,
they identied the signature as the moment of formation.
57
In a test of the
Mailbox Rule, for which the doctrinal debate is typically over whether
formation should be at the moment of dispatch or receipt, more than half of
the subjects chose neither—they chose the moment that the oeree signed
the contract, before mailing it to the oeror.
58
There was such resistance to
the idea that contracts could be formed without a contract document that
only eighteen percent of subjects thought a contract had been formed when
the buyer emailed “I’ll buy [your car]! Can I drop the check o tomorrow
and pick up the car? $2,000 is ne by me,” and only twenty-four percent
when the seller replied, “Yes! I’ll see you tomorrow.”
59
Instead, they
overwhelmingly thought there was no contract until the payment had been
made—after the manifestations of assent.
60
Indeed, the formal fact of being in a contract aects parties’ behavior to
an extent not easily explained by a rational cost–benet calculation. Oliver
Hart and John Moore argued that contracts act as reference points, meaning
that parties evaluate outcomes with reference to their expectations under
the contract, rather than the actual status quo.
61
This theory draws on the
concepts of loss aversion and status quo bias, arguing that the moment of
contract is the “kink” in the utility function. We followed up on this
prediction with an even more ne-grained hypothesis: that the pure, formal
fact of contract formation aects behavior irrespective of the contract’s
practical implications for the parties.
62
That is, it is not just that contracts
reset parties’ expectations (something that any informal deal or promise
could do), but that the legal contract has a sort of framing eect, informing
how parties understand their rights and obligations, as well as the costs and
56
Id. at 15.
57
Id.
58
Id. at 17.
59
Id. at 13-14.
60
Id. (showing that fty-one percent of those surveyed believed a contract was formed at the
time of payment).
61
Oliver Hart & John Moore, Contracts as Reference Points, 123 Q.J. ECON. 1, 2 (2008) (“We
argue that a contract provides a reference point for the parties’ trading relationship: more
precisely for their feelings of entitlement.”).
62
David A. Homan & Tess Wilkinson-Ryan, The Psychology of Contract Precautions, 80 U.
CHI. L. REV. 395, 397 (2013) (“We hypothesize that one of the most important determinants of
self-protective behavior is whether the promisee considers herself to be in negotiations or already
in an ongoing contractual relationship.”).
2122 University of Pennsylvania Law Review [Vol. 163: 2109
benets of performance and breach.
63
We tested this by asking subjects to
consider whether or not they would be willing to “cancel” an arrangement
(either a car lease or automobile insurance). Subjects were randomly
assigned to read that the contract had a trial period before the contract
kicked in, or that the contract period had begun but that there was a refund
policy that permitted hassle-free cancellation within a certain period after
the contract was made. The subjects were more willing to cancel if the trial
period was before, rather than after, contract formation, even though the
dierence was only the dierence between commitment to a revocable
contract and a revocable non-contractual deal.
64
This result suggests that
there is something about the fact of a legally binding contract—even one
that explicitly permits breach without consequences for the breaching
party—that changes how individuals perceive their obligations.
2. Contract Enforcement is Specic Enforcement of All the Terms
This intuitive formalism also pervades the commonsense understanding
of contract enforcement. People think that contracts are enforceable as
written—and, indeed, they often believe that specic enforcement is
available and appropriate. One study of enforcement behavior showed
participants a contract between a health club and a consumer.
65
Half of the
participants were assigned to read a version of the contract with a clause
relieving the drafter of liability for customers’ personal injury claims,
including those arising from the health club’s own negligence.
66
The other
half read the same contract but without the exculpatory clause.
67
Subjects
were asked to imagine themselves in the position of a party who had
suered an injury, and asked to indicate their likelihood of seeking legal
advice and approaching the club for compensation.
68
Those subjects whose
contracts included exculpatory clause were less likely to report that they
would seek redress, even though they did not report nding the contract
any less fair.
69
63
Id. at 408 (“The reference point was the contract, meaning the value of performance was
judged with reference not to the overall outcome but with reference to the expected outcome
under the contract.”).
64
Id. at 418.
65
Dennis P. Stolle & Andrew J. Slain, Standard Form Contracts and Contract Schemas: A
Preliminary Investigation of the Eects of Exculpatory Clauses on Consumers’ Propensity to Sue, 15
B
EHAV. SCI. & L. 83 (1997).
66
Id. at 86-87.
67
Id.
68
Id.
69
Id. at 91.
2015] Intuitive Formalism in Contract 2123
Perhaps this literal belief in the promise of the contract helps explain a
similarly rigid concept of contract in the performance and enforcement
context. It might not be surprising that many people think that their moral
obligation under a contract is to perform, not simply to pay damages in the
amount that would put the non-breaching party in a position as good as
performance would have done. But what might be more surprising is that
many people think that performance is legally required—that is, that a
judge will actually order specic performance, whether on a delivery of
goods or a routine service contract.
Indeed, high-salience stories of contractual unfairness abound. The
subprime mortgage crisis, for example, involved in part a narrative of
millions of Americans being talked into not only disadvantageous contracts,
but contracts that were clearly, unequivocally enforceable.
70
Whether the
victims in these narratives are deserving of sympathy or scorn may be
contested, but there is a clear lesson about the facts of American contract
law: burdensome, unread terms are enforceable. In this way, certain
contract law doctrines make their way into the psychology of contract.
III. V
IGNETTE STUDY: EFFECTS OF FORMALITY ON WILLINGNESS
TO
BREACH
Given our understanding of both moral preferences around contract
performance and of formalist understandings of legal obligation, it is worth
asking how the two sets of preferences or intuitions interact. We have
ample information that there are real social and moral norms that bear on
contract performance—for example, altruistic preferences, reciprocity
norms, or personal commitments to promise-keeping. In most discussions
of moral norms, there is an underlying assumption about the positive
normative status of altruism and personal integrity. Indeed, these kinds of
norms, and the related fear of informal sanctions for violating them, might
actually be the primary enforcement mechanisms for the kinds of small-
stakes contracts most of us make every day. But at least some research
suggests that increased formality yields an increased likelihood of
performance, whether because people internalize the solemnity of the
commitment or because they believe that legal enforceability has practical
70
See, e.g., Oren Bar-Gill, The Law, Economics, and Psychology of Subprime Mortgage Contracts,
94 C
ORNELL L. REV. 1073, 1138-39 (2009) (“A recent study found that black borrowers paid an
additional $415 in fees and Latino borrowers paid an additional $365 in fees. . . . Borrowers with
less income and education are less likely to know their mortgage terms, implying greater
underestimation of deferred or hidden costs and a diminished ability to eectively shop for better
terms.”).
2124 University of Pennsylvania Law Review [Vol. 163: 2109
consequences to their choices. Oddly, the formality of our contracts is not
necessarily associated with the attendant stakes. A homeowner might
reasonably prefer an oral contract for a $20,000 home renovation if she has
reason to trust her contractor and to worry that formalization will make
their interactions more stilted. By contrast, the contract that accompanies
an iTunes purchase covers every possible base in writing. Indeed, it is fairly
obvious that contract formality is about the parties, and not the stakes
involved. When a rm is involved in a deal, even a very small deal, there
are standard terms and a record of the parties’ assent to those terms. Given
the thread of formalism we see across contracts contexts, it also seems
reasonable to suspect that formalities up the moral ante—that is, that
formalities have behavioral eects.
An original study reported below tested the idea that the formalist
tendency aects how parties feel about their contracts. In this scenario,
subjects were asked to imagine that they were party to either a verbal or a
written contract. They were then asked what nancial incentive they would
require to back out of the contract. The prediction was that subjects who
were part of a more formal contract would feel more bound and would
therefore require a greater nancial incentive to back out, even though the
degree of formality had no practical bearing on the consequences of
cancellation.
Each of these scenarios, in both conditions, included language
explaining that the contract was not binding until a waiting period had
passed. This approach allowed subjects’ behavioral and/or moral intuitions
to be evaluated without implicating their (mis)understandings of actual
contract penalties and remedies.
In this study, subjects read a short vignette under one of two conditions,
Signature or No Signature, and answered follow-up questions. The subjects
read the following scenario:
Please imagine that you have a motor boat that you would like to sell. It
is parked in your driveway with a For Sale sign, but you’ve had very little
interest. You decide to try to sell it on Craigslist.
On Craigslist, you list the asking price as “$12,500 or best oer.” After a
few days of listing the boat, you have an interested buyer. He comes and
looks at the boat and oers you $12,000. You agree.
Signature Condition only: the two of you sign an agreement of sale.
For sales of large vehicles like cars and boats, there is then a state
mandated three-day “waiting period.” Once the parties have negotiated a
deal and signed an agreement of sale [reached a verbal agreement] they
must wait three days before completing the transaction. During the waiting
2015] Intuitive Formalism in Contract 2125
period, either party may cancel the transaction with no penalty. After the
waiting period, if neither party has backed out, [the parties sign the sales
contract, and] the buyer pays in full and picks up the vehicle.
Subjects then answered three questions:
1. While you are waiting out the three-day waiting period, someone
rides by your yard and sees the boat with its For Sale sign still in the window,
and makes an oer of $12,500 for the boat. The three-day waiting period has
not expired. Would you cancel the deal with the Craigslist buyer?
2. What is the lowest oer that you would accept to cancel with the
Craigslist buyer and go with the new buyer? For example, would you go
with a new buyer if they were oering $15,000? What about $12,100? What is
the lowest price that the new buyer could oer such that you would prefer
to go with them instead of the Craigslist buyer?
3. To what extent do you think it would be morally wrong to cancel
with the Craigslist buyer?
Table : Summary of Results, Study , Eect of Signing on Willingness
to Accept Alternate Oer
Signed Contract Verbal Contract
Median WTA $13,500
$13,000
Mean WTA $14,168.58
$13,467.27
Wrongness (-point scale,
not immoral at all;
very morally wrong)
4.1 3.9
In the Signed Contract condition, 30.3% of the subjects said that they
would cancel the deal with the Craigslist buyer. Where the formal contract
was not yet signed, 44.0% of subjects would cancel for the higher oer. This
dierence is signicant (t=1.997, df=185.57, p=.0473).
71
On the free response question, all responses over $25,000 were omitted
as outliers. The mean and median responses were signicantly higher in the
Signed Contract condition than in the Verbal Contract condition (W=3497,
71
Under the Uniform Commercial Code’s statute of frauds, the seller’s signature would be
required to enforce the deal. U.C.C. § 2-201 (2014). However, under both conditions it was
stipulated that the parties were allowed to back out, so this contingency should not have aected
subjects’ behavior, even if they knew of the rule.
2126 University of Pennsylvania Law Review [Vol. 163: 2109
p=.0139). There was no dierence in the perceived wrongness of
cancellation by condition.
IV. D
ISCUSSION AND IMPLICATIONS
The results show that signing a formal contract made subjects less
willing to exit the deal in favor of another more lucrative partnership, even
though the signature had no legal force or meaning. For psychologists,
explaining why formalities make people feel more bound is the most
pressing among the open questions in intuitive formalism. It could be an
essentially other-regarding heuristic—the ritual of the formalities
communicates to the other party an increased likelihood of performance,
prompting more reliance and, in the event of breach, greater
disappointment. Or, it could be that the rituals have internalized meaning,
and that signing documents is understood to be an almost sacred act. The
mechanism remains unclear and deserves further experimental attention.
For law and policy scholars, though, the behavioral result alone might
raise concerns. In particular, increased formalization may have
disadvantageous behavioral implications for consumers. Because many
people take formal contracts seriously, rms may be able to leverage
formalization in order to minimize the likelihood that consumers will exit
bad deals or complain about bad terms—that is, they will fail to punish
rms for their bad contracting behavior. Terms that stand on shaky legal
ground—forbidding class actions or imposing penalties for termination, for
example—may go unchallenged as a practical matter because the dominant
view of contract doctrine is that it is all about the formalization of deals, not
the substance of those deals. The persistence of contract doctrine in the face
of strong, empirically based policy objections is arguably at its starkest in
the context of contracts of adhesion. This happens at two levels: the level of
courts and the level of consumers. As Ben-Shahar and Schneider observed,
the popularity of disclosure regimes has been essentially unsullied by the
reality that disclosures serve virtually no informational purpose.
72
But this
does not mean that disclosures have no eect; in fact, disclosures are very
eective in protecting rms from litigation.
73
Behavior that would
otherwise give rise to liability can eectively be disinfected by way of a
disclosure.
72
See generally Ben-Shahar & Schneider, supra note 15 (exploring “the spectacular prevalence,
and failure, of . . . mandated disclosure”).
73
See id. at 739 (“[A]n empty but formally correct disclosure can keep the contract from
being unconscionable, however problematic its terms.”).
2015] Intuitive Formalism in Contract 2127
Finally, the formalist tendency can work against consumers in a less
obvious way, namely that consumers themselves tend to take a surprisingly
strong strict-liability stance when it comes to unread terms. In a previous
study, subjects were asked to consider an unfortunate (or hapless,
depending on your attitude) consumer who agreed to a credit card contract
and later learned that the terms included a fee for online payments.
74
The
consumer was unhappy and regretted the deal.
75
Subjects were randomly
assigned to read one of two variations of the fact pattern, either that the
contract was two pages long or that it was fteen pages long.
76
Participants
were then asked, among other things, the extent to which readership was a
reasonable expectation and the extent to which the consumer was to blame
for his own misfortune.
77
Subjects in the long contract condition
overwhelmingly thought it was unreasonable to expect anyone to read the
contract, while subjects in the short contract condition thought it was
moderately reasonable.
78
The two groups did not dier at all, however, on
the blame measure.
79
In both groups, the large majority (over eighty
percent) agreed that the consumer was to blame for his situation.
80
This is
very much in line with Stolle and Slain’s nding that subjects did not
dierentiate between the fairness of a contract that was highly
disadvantageous to the consumer and one that was reasonably equitable.
81
The fact of assent seems, for the average consumer, to cleanse the
transaction—to press the reset button, morally as well as legally.
These misconceptions about contract doctrine may actually be a part of
the story of the New Doctrinalism. There is an argument to be made that
the lay understanding of contracts as enforceable as written provides a fairly
accurate approximation of what individuals can expect from the legal system
if they want to enforce a contract after breach. They may imagine that the
likelihood of a successful claim in contract is very low if there is a dispute
about whether a contract ever existed or over its content—in other words,
they may correctly surmise that they would fare better in court with proof
of the deal. Indeed, they may be intuiting their way to the Statute of
74
See Wilkinson-Ryan, supra note 22, at 1763 (explaining the experiment).
75
Id.
76
Id.
77
Id.
78
Id. at 1764.
79
Id. at 1764-65.
80
Id.
81
See Stolle & Slain, supra note 65, at 91 (nding that “the presence of an exculpatory clause”
deterring consumers from pursuing their legal rights “did not impact [study] participants’
perceptions of fairness of the contracts”).
2128 University of Pennsylvania Law Review [Vol. 163: 2109
Frauds. However, evidence from previous studies shows that subjects view
even email assent as insucient to form a contract, even though email
communications are surely capable of being brought into court as evidence.
Furthermore, it appears that subjects focused on form often insist on the
wrong formalities. Anecdotal evidence suggests that the requirement of
consideration—which certainly aects legal enforceability—sometimes
comes as a surprise.
82
Option contracts, for example, require ritualized
consideration (nominal consideration, a recital of consideration, or a recital
of nominal consideration),
83
but this particular formality is not an obvious
one to most consumers.
Consumers’ other formalist tendency is to understand contract law as
being about how to make and perform deals rather than which deals to
make. There exists evidence in various contexts that consumers believe they
are bound to terms that would clearly be unenforceable. Take Carnival
Cruise Lines v. Shute, for example, a case in which cruise ship passengers
paid for tickets before the terms and conditions arrived.
84
When the terms
arrived, they included the particular forum selection clause at issue in the
case, as well as a no-refund provision.
85
The Supreme Court suggested
dismissively that the no-refund clause was not enforceable and that it
therefore had no bearing on the forum selection question.
86
But the dissent
was somewhat more realistic about consumer psychology, arguing that the
average consumer would believe the refund clause applied and would
therefore fail to return the tickets even if the terms were unacceptable.
87
When examining research gathered under the heading of intuitive
formalism, two dominant themes emerge. First, the popular conception of
contract formation is largely concerned with highly ritualized
documentation of assent (i.e., signing papers).
88
Second, there appears to be
a view that the primary purpose of contract law is policing the form, rather
82
This phenomenon may be observed in the highly formalized documents featured in a rst-
year contracts course’s section on promissory estoppel. Ricketts v. Scothorn, 77 N.W. 365 (Neb.
1898), for example, features a written and signed promissory note but no pretense of
consideration.
83
See RESTATEMENT (SECOND) OF CONTRACTS § 87 (1981) (“An oer is binding as an
option contract if it is in writing and signed by the oeror, [and] recites a purported consideration
for the making of the oer . . . .”).
84
499 U.S. 585, 587 (1991).
85
Id. at 597 (Stevens, J., dissenting).
86
Id. at 595 (“[R]espondents have conceded that they were given notices of the forum provision
and, therefore, presumably retained the option of rejecting the contract with impunity.”).
87
Id. at 597 (Stevens, J., dissenting).
88
Wilkinson-Ryan & Homan, supra note 7 (nding that participants in questionnaire
studies largely identied the moment of contract formation as the time of signing a written
document).
2015] Intuitive Formalism in Contract 2129
than the content, of agreements.
89
In other words, that the role of courts in
contract disputes is to determine whether the parties took the right steps to
bind themselves and, if they did, to enforce the obligations to which the
parties assented.
C
ONCLUSION
New doctrinalism is essentially a broad and possibly unfalsiable
hypothesis: that legal realism did not defeat legal doctrine, but rather that
modern courts accommodate at least some of the most compelling forms of
realist methods. Lay misconceptions about contract doctrine may actually
be a part of the story of this new doctrinalism. It is possible that the lay
understanding of contracts as enforceable forms is in fact a good distillation
of what individuals can expect from the legal system if they want to enforce
a contract after breach.
Ending the analysis here would be perfunctory, though, because in many
cases, people get the formalities quite wrong. Consideration, for example, is
of paramount importance in common law courts—in option contracts, for
instance, consideration matters more than the formality of documentation—
but common sense may rank them in the reverse order. In the meantime,
there is growing recognition that both law and legal practice contribute to
legal intuitions, and those intuitions, in turn, aect a whole range of
behaviors that exist outside the legal system.
89
See, e.g., id.; Stolle & Slain, supra note 65.
