Consumer Contract Exchanges and the Problem of Adhesion

Businesses and sophisticated parties have long used “contract exchanges,” like the Chicago Board of Trade, to obtain a fair price and protect themselves from market volatility. These contract exchanges have greatly benefitted both their participants and the public at large, but participation was long limited to a wealthy few. A decade ago, however, Internet websites, including Hotwire and Priceline, brought the power of contract exchanges directly to consumers, allowing regular people to flex their collective bargaining power to obtain low prices on travel services. Even more recently, other such “consumer contract exchanges,” including Prosper and MoneyAisle, have organized vibrant markets for small loans and certificates of deposit, to the benefit of consumer borrowers and investors.Modern contract law usually bends over backwards to protect consumers, so one would surely expect it to be supportive, or at least not hostile, to these developments. Surprisingly, however, one strand of common law doctrine - the rules that pertain to so-called “contracts of adhesion” - actually stifles the development of consumer contract exchanges by undermining the reliable enforceability of the contracts they generate. Courts should therefore clarify that while exchange-traded consumer contracts fit the formal definition of contracts of adhesion, they should be enforced as if they were ordinary, negotiated agreements.This Article makes four novel contributions: First, it defines contract exchanges and enumerates their necessary institutional attributes. Second, it theorizes and recognizes a new form of contract exchange - the consumer contract exchange. Third, it suggests that the doctrine of adhesion hinders the further development of consumer contract exchanges, and fourth, it offers a common law solution to this common law problem