Research On Regulation Of Standard Form Contract

The standard form contract(SFC)is tailored to the need of modern society with its low-cost and high-efficiency characteristics.Complying with market discipline,SFCs are commonly used in daily transactions.SFCs are born with positive and negative externality.The positive externality includes the simplication and stimulation of transactions.Motivated by the changing market,sellers would keep optimizing their right-and-obligation packages in order to attract buyers and expand their mass-market.The negative side of SFC,otherwise,is mainly about the omission of negotiation.Sellers would use SFC as a vehicle to leverage their market power,which put the freedom of contract doctrine in jeopardy.Due to lack of competition(or even monopoly)and information asymmetry,market itself lost the capability to control and absorb the negative externality of SFC.As a result,balance of right and obligation will be broken in distribution.SFCs,then,act as a tool of repression against consumers.The positive and negative effects represent the difficulty in regulation.It is hard to make arrangement of legal approach and market approach,and to achieve a compromise and symbiosis between authority of will and fairness.To establish an SFC regulation system,law should let market do its own job and prevent itself from unproperly intervening.Meanwhile,law should act as a backup when market fails to correct the imbalance between parties.Deviated from traditional contract law,the"take it or leave it" choices provided by sellers show that the tendency on contract innovation would be a huge challenge to traditional doctrine of freedom.This problem,named the "death of contract" by American scholar Grant Gilmore,still needs further discussion.In the ideal model,freedom of contract and justice of contract will be achieved simultaneously,so that intervention of the law in the procedural level is enough.Facing the SFC and consumer contract problem,contract law no long insists the pro forma authority of will and tends to make real changes.How to enforce the fundamental value such as fairness becomes the prior subject in contract law.This research starts from establishing the goal of SFC regulation and presents this argument in "what-why-how" manner.It defines the problem of SFCs and considers the limits of current regulatory function and the ideal model of regulation.Chapter 1 presents the goal and legitimacy of SFC regulation and the improvement of regulation accuracy.It discusses what SFC regulation should do to response the requirements of freedom doctrine and fairness doctrine.This chapter provides such a theory.Unfair market power between parties and the limits on shopping among sellers do not affect the freedom required by contract law.According to freedom of contract doctrine,SFC hurts buyers transaction freedom only by its standardization attribute,so that the contract law should protect buyers' transaction freedom only by eliminating information asymmetry between parties.On the other hand,SFCs violate the principles of justice only in an indirect way.The principle of justice in contract law should,therefore,be applied in the following way:(1)it provides regulators with access to intervene the contents of SFCs.(2)it addresses the distribution of benefit and risk directly,instead of through the bargaining procedure.(3)it authorizes courts to take public policy into account and prevent terms with negative values to society from being enforced.In the modern contract law theory,SFC regulation should be designed with hierarchical goals,strategies and forces.First,the goal of SFC regulation should be clearly defined.Instead of Kaldor-Hicks improvement,the regulation of SFC,under freedom of contract,should be a Pareto improvement.Negotiations,which allow parties to reach a consensus about distribution,are considered the optimal approach to achieve Pareto efficiency.Based on this theory,SFC regulation should apply within the situation where buyers do not have the choices.Justice of contract,on the other hand,requires that distribution of cooperative surplus reaches competitive equilibrium.Due to the impossibility of bargaining in standard form contract transaction,sellers have more advantages in the game.SFC regulation should intervene in the situation where distribution deviate from equilibrium principle.Second,the mixed effects and complexity of SFC blur the differences between the use of market mechanism and the use of authority mechanism,and soft the boundary between public law and private law.The regulatory theory differs from laissez-faire.Operations of both market mechanism and authority mechanism are guaranteed by the country as guide and correction of private cooperation.This chapter also defines standard form contract on the perspective of both legal dogmatics and law and economics.Some similar concept of SFC are "contract of adhesion","boilerplate","fine print","standardized contract","standardization of standard form contract",etc.The concepts are different among different countries.SFCs are pre-printed,standardized,non-negotiated,adhesive and routinely.In the legal perspective,scholars keep arguing whether the nature of SFCs is "contract" or"statute".This judgement determines the foundation of regulation structure.In the economic perspective,SFCs can be considered as products,quality,or public goods.In China,the object of regulation changes from contracts as a whole to terms,and from "legal acts" to "intentions".This evolution makes the regulation more accurate.Following this strategy,this chapter contends that the unit of object should be subdivided.The terms can be divided by contents,like core consideration terms and non-core terms,business contract terms and consumer contract terms,exemption clauses and non-exemption clauses,terms relevant to essential rights and those relevant to non-essential rights.Chapter 2 summarizes current legislative practice,judicial practice and administrative practice in China.China established the SFC regulation system with China Contract Law as a core,including China Consumers 'Rights and Interest Protection Law,China Insurance Law,and China Antitrust Law.There seems to be some conflicts between Article 39,Article 40,Article 52,53 of China Contract Law and Article 10 of Judicial Interpretation of China Contract Law,which triggered lots disscutions.How to refine and integrate those rules would be the prior question in the matter of SFC regulation.In the guiding cases selected by Chinese Supreme Court,the preference of rules and attitude of courts were different,which shows the balance and cooperation between informational regulation and content regulation.Since informational regulation leaves courts more discretions,district courts tend to decide the enforceability of terms under informational rules and never distinguish the real problem with terms.In addition to China Contract Law,Article 26 of China Consumers 'Rights and Interest Protection Law established regulation on consumer SFC on the basis of China Contract Law.While China Insurance Law expanded informational rule in response of the nature of insurance contracts.China Contract Law,coupled with China Consumers 'Rights and Interest Protection Law and China Insurance Law,which followed the informational and content regulation mechanism,focus on the inequality of information.China Antitrust Law,on the contrary,responds the situation where the low quality of SFCs is caused by the inequality of market power.Beyond judicial approach,China Consumers' Rights and Interest Protection Law,China Insurance Law,as well as China Antitrust Law authorized former CBRC,CIRC,State Administration for Industry&Commerce,and CSRC coupled with antitrust administrations,to act as SFC administrative regulator in their industries and arena.Informational regulation and content regulation are adopted by Chinese contract law as two basic approaches of SFC regulation.The specific informational regulation in China is the requirement of disclosure,while content regulation includes undue term regulation,fairness doctrine and unconscionability,etc.these two approaches cooperate with each other,improving the quality of SFCs together.Different countries and different centuries had different preferences.How to balance them and whether expand or limit them then become a case-by-case decision.Chapter 3 and 4 respectively discuss the logic,application and ways to improve of these two approaches.Interpretation,as supplement to content regulation,is dicussed in Chapter5.These three chapters establish the main body of this dissertation.Chapter 3 focuses on the informational regulation,which is regarded as an ex ante market-dimension approach.The goal of informational regulation is to provide buyers with the access to shop and reactivate market mechanism.Economic and legal theory suggests that,the reason why market fails is that the bounded rationality stops buyers from noticing and pricing all the product attributes.Besides,in some circumstances even the rational consumers choose to give up shopping by doing cost-and-benefit analysis.The function of obligation for drafting parties to remind non-drafting parties is to eliminate information asymmetry between parties,saving non-drafting parties from duty to read.The function of obligation to interpret is to make up the gap between professions and laymen.Aiming for buyers' information receiving and processing characteristics,this chapter suggests two aspects for informational regulation to improve:accuracy and depth.The range of informational regulation can be narrowed applying the salience standard or generality standard.Empirical research can be used to decide the characteristic of specific terms.The reforms to improve efficiency includes standardization of information disclosure,information processing by third parties,and "menu" contracts.Besides,libertarian paternalism or "nudge" theory can be used to improve regulation efficiency.To draw the edge of regulation and to set up the standard,this chapter suggests that informational regulation should cooperate with rules about fraud,mistake,and duress.Chapter 4 discusses content regulation of SFCs.In China,doctrines applied by courts as content regulation include not only undue term regulation and fairness doctrine,but also exclusion term regulation,public policy,and the general principles:good faith and public order and good morals.These doctrines leave courts the discretion to judge on a case-by-case basis.In light of the qualification of these doctrines,some of them,such as unconscionability,advantage-taking,and public policy rule,take contract,instead of contract clause,as object of regulation,while undue term regulation and exclusion term regulation focus on contract clause,not contract.Classified by the dimensions which courts would consider when applying these doctrines,undue term regulation and exclusion term regulation simply focus on imperfection of assent,while good faith and public order and good morals require both assent test and balance test.Chapter 5 examines the effect of interpretation rules.The argument between subjective interpretation(Willenstheorie)and objective interpretation(Vorstellungstheorie)illustrate the limitation of the dichotomy between subjective intent and objective intent.The "will" or the "act" itself cannot lead to legal consequence independently.In China,objective interpretation is the general rule for SFCs.Courts would apply unfavorable interpretation rule only on a finding of multiple results under general interpretation rule.When applying unfavorable interpretation rule,courts occasionally overuse or misuse this rule.As a consequence,the result may inappropriately favor non-drafting parties and violate the neutrality of courts and invade the territory of content regulation.Even though informational and content regulation can be improved,there are still some limits on their function,which can be described as their "ceilings".Besides,judicial approach itself has some limitations such as ex post nature,case-by-case analysis,nonprofessional perspective and anti-market consequences.Rather,executive regulation should be a better way to regulate SFCs.China can establish ex ante approval system based on a product regulation mode.Which has been mentioned in Chapter 6.Chapter 6 suggests the ex ante regulation of SFCs,which is to review the content of SFCs in advance by administrative institution.This approach,coupled with informational regulation,will reduce the cost of disclosure,information processing and repetitive judicial investigation.It contends that a dual-pronged approach consisting of mandatory minimum quality standard and credible quality standard should be established.If a form term fails to reach mandatory minimum quality standard,it cannot be used in transaction.If the term meets mandatory minimum quality standard but fails to reach credible quality standard,drafting parties should make a substantial disclosure.If the term reaches credible quality standard,drafting parties should only make a procedural disclosure.This system,added in front of judicial action,will relieve stress of courts and achieve greater adjudicative consistency.