Freedom of Contract includes Freedom from Contract

by on October 30, 2008 · 24 comments

Alex’s excellent post on the enforceability of shrink-wrap contracts produced a lively debate that’s worth checking out. In particular, my friend Wilson mounts a spirited defense of the proposition that if a customer has a reasonable expectation that a Gateway computer will arrive with a contract attached, and if Gateway offers to pay for return shipping if the customer does not wish to be bound by the contract, then it’s reasonable to consider the the customer bound by the contract if he does not return the computer to Gateway.

I think there are several reasons to be skeptical of this position, but rather than re-hash the arguments I made in the comments to Alex’s post, I think it’s worthwhile to step back and consider the broader principle at stake here. Libertarians are, of course, in favor of freedom of contract, but it’s important to understand what freedom of contract means. Some libertarians seem to think that being in pro-freedom of contract means being pro-contract in the sense that the government should make contract formation as easy as possible and should enforce as many contracts as possible. For example, a few weeks back I criticized an article by F. Scott Kieff that seemed to take this kind of view with respect to patent law.

I think this is a mistaken conception of what freedom of contract is all about. At its heart, freedom of contract is about peoples’ freedom to enter or not enter contractual relationships, and to be confident that the government will enforce valid contract in a predictable manner. The “or not enter” part is important. It violates freedom of contract for the state to fail to enforce a contract to which both parties have consented. But it’s no less a violation of freedom of contract to enforce a contract to which one of the parties did not consent.

And I think we should be extremely skeptical of inferring an affirmative obligation based on someone’s failure to take some action demanded by another party. Complying with such a demand always has costs (I might live far from the nearest post office and not have a car, for example), and I shouldn’t have to bear costs simply to avoid being a party to a contract I never indicated interest in being party to in the first place. And no, the fact that computers often come with attached EULAs doesn’t mean that I “should have known” that there would be a EULA in the box. Courts can’t read minds; the enforceability of contracts needs to be about peoples’ actions, not speculation about what they did or should have known.

  • Ryan Radia

    So where do we draw the line on enforcing EULAs? If I try to buy a song off iTunes, and just before authorizing the purchase on my credit card, I hit ‘yes’ to a license agreement presented to me by Apple, then the terms of that agreement are binding and ought to be enforced.

  • Ryan Radia

    So where should libertarians draw the line on enforcing EULAs? Let's say I download and pay for a piece of software, and then as I'm installing it, I'm presented with a EULA that I subsequently accept, even though I wasn't aware of the license terms at the point of sale. Is this EULA enforceable? Is it relevant to consider the ease with which I'm able to return the software and get my money back if I refuse to accept the terms?

    Or what if I somehow hack the software such that I'm able to install it without ever hitting the 'I agree' button on the EULA screen? Do the terms of the EULA still hold the force of law? Is the fact that a EULA clearly applied to the software sufficient to make it enforceable regardless of any workarounds?

    One one hand, assenting to a contract if it's the only way to actually use a program you've already purchased seems like it shouldn't be enforceable. Then again, clicking 'I agree' is like agreeing to a contract, even if it's the only way to use software.

  • http://zgp.org/~dmarti/ Don Marti

    Is the entire contract available to the customer before purchase? If not, the customer can probably take the vendor to Small Claims Court, which can be very expensive for large, evil, junket-in-Aspen-funding companies to deal with.

  • http://www.openmarket.org/author/alex-harris/ AlexHarris

    This is essentially the difference between option 2 and option 3 in my original post. I think that it's more compelling to say that when I purchase a piece of software, I hand over the money expecting that the software is now mine, period. In other words, our transaction has created a contract whereby I'm buying the program (not just the disc, which when I put it in my computer requires me to form a contract in order to do anything with). When I get home and try to install the software, the sale has already taken place, so requiring me to agree to something else to use what's mine is unjust. Those terms should not be enforced.

  • http://www.openmarket.org/author/alex-harris/ AlexHarris

    I should also add that my reason for treating the sale as being of the program, not just the disc, is that the sale would be governed by the default warranty of merchantability that says that the seller warrants that the product it's selling is reasonably fit for its purpose (namely, letting me use software, not giving me an expensive coaster).

  • Ryan Radia

    So where should libertarians draw the line on enforcing EULAs? Let's say I download and pay for a piece of software, and then as I'm installing it, I'm presented with a EULA that I subsequently accept, even though I wasn't aware of the license terms at the point of sale. Is this EULA enforceable? Is it relevant to consider the ease with which I'm able to return the software and get my money back if I refuse to accept the terms?

    Or what if I somehow hack the software such that I'm able to install it without ever hitting the 'I agree' button on the EULA screen? Do the terms of the EULA still hold the force of law? Is the fact that a EULA clearly applied to the software sufficient to make it enforceable regardless of any workarounds?

    One one hand, assenting to a contract if it's the only way to actually use a program you've already purchased seems like it shouldn't be enforceable. Then again, clicking 'I agree' is like agreeing to a contract, even if it's the only way to use software.

  • http://zgp.org/~dmarti/ Don Marti

    Is the entire contract available to the customer before purchase? If not, the customer can probably take the vendor to Small Claims Court, which can be very expensive for large, evil, junket-in-Aspen-funding companies to deal with.

  • http://www.openmarket.org/author/alex-harris/ AlexHarris

    This is essentially the difference between option 2 and option 3 in my original post. I think that it's more compelling to say that when I purchase a piece of software, I hand over the money expecting that the software is now mine, period. In other words, our transaction has created a contract whereby I'm buying the program (not just the disc, which when I put it in my computer requires me to form a contract in order to do anything with). When I get home and try to install the software, the sale has already taken place, so requiring me to agree to something else to use what's mine is unjust. Those terms should not be enforced.

  • http://www.openmarket.org/author/alex-harris/ AlexHarris

    I should also add that my reason for treating the sale as being of the program, not just the disc, is that the sale would be governed by the default warranty of merchantability that says that the seller warrants that the product it's selling is reasonably fit for its purpose (namely, letting me use software, not giving me an expensive coaster).

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