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2013 Queen Mary Law Journal
EDITORIAL BOARD
Annual Essay Contest: First Year Contract Law
Editor-in-Chief
Jonathan Minnes
Managing Editors
Jessica Robin Hewlett
Graeme Scotchmer
Editors
Ana Georgina Alba Betancourt
Katelynn Schoop
Hlne Tyrrell
Postgraduate Members
Mark Hannah
Alexander Horne
Smret Mesfin
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Faculty Advisors
Professor Eric Heinze
Alicia Livingston
8. Chapelton v Barry Urban District Council [1940] 1 KB 532, [1940] 1 All ER 356
9. Parker v South Eastern Railway [1877] 2 CPD 416 (CA)
10. Interfoto Picture Library Ltd. v Stiletto Visual Programmes Ltd.[1987] EWCA Civ J1112-6,
Charlotte Seymour
The law of contract is the invisible environment in which consumer and business transactions
take place. In England and Wales the law is to be found on the statute books as well as amongst
the ratios of a wealth of cases. Laws are designed with a purpose in mind, but this is not to
say that the purpose is always consistent across laws or that the design is necessarily fit to
achieve that purpose. One area where the law is put to the test is the scenario of a business or
consumer being presented with contract terms which they have little opportunity to negotiate.
As the above quotation indicates, this party may either be ignorant in relation to the terms of
the transaction, or impotent, or both. The problem for the judge or the legislator, then, is to
determine which principles should govern regulation, and what form of regulation would be
most effective, in cases where ones freedom to contract is formal at best.
The law can affect the life of a contract term in three distinct ways. First, it allows for the
determination that a term or clause is not actually a term of the contract at all. That is to say,
that it has not been successfully incorporated into the contract. Second, it establishes how a
term is to be interpreted. Third, it allows a term to be modified or struck down, most notably
on the authority of legislation. The Unfair Contract Terms Act 1977 (UCTA) and the Unfair
Terms in Consumer Contracts Regulations 1999 (UTCCR) whose provisions are used for this
purpose have been described as probably the two single most significant pieces of legislation
in the field of contract law in the UK1. While the common law and statutory rules which
fall into these categories have largely sought to protect the recipient of the standard form
contract, there are both competing rationales behind the rules and serious impediments to
their effectiveness.
As a general rule, when a party to a contract signs a document in which clauses are contained,
the clauses become terms of the contract.2 Contracts are increasingly made online, requiring
the provision of an electronic signature. Often this will simply require that a party ticks a box
to agree to terms which may themselves be out of sight. As a result there is a greater risk of
power imbalance, with one party potentially being unaware of the terms of the contract set out
by the other and being in an even weaker position to challenge any terms. In McCutcheon v
3. [1964] 1 WLR 125, quoted in Macdonald, The Emperors Old Clauses: Unincorporated Clauses,
Misleading Terms and the Unfair Terms in Consumer Contracts Regulations (1999) CLJ 413, 421
4. Ibid. (McCutcheon) (HL) 133
5. Parker v South Eastern Railway (1877) 2 CPD 416 (AC) 424
6. Ibid. (AC) 423
7. Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] QB 433 (QB) 439
8. [1951] 2 KB 739, [1951] 2 All ER 212
9. Ibid. (KB) 748
10. Henry Kendall & Sons v William Lillico & Sons Ltd [1969] 2 AC 31
11. Sale of Goods Act 1979 (SOGA), s 14 (2B) (a)
injury resulting from negligence17, and suggests this is a pronouncement on how risk should
be distributed in our society.
Indeed, the fact that UCTA applies to both negotiated and non-negotiated contacts supports
this point, because even where an individual (whether acting as a business or consumer) wishes
to assume this risk they are prevented from doing so. Yet to allow this would not threaten the
claimed primary role of the statute, which is to protect consumers against unfair surprise18.
Admittedly, in applying the reasonableness test of the Act to exclusion clauses, there is some
acknowledgement of the fact that individuals are capable of making arrangements for the
spread of risk. This might be evidenced by the receipt of an inducement to relieve the other
party of some liability, or the existence of an opportunity to contract with someone else.19
The introduction of legislation has not particularly aided the debate as to whether a party
may exclude their liability for a fundamental breach of the contract. This was debated in
judgements over the last century, and the conclusion reached that it may20. Under UTCCR
this was seemingly clarified, as the test of whether a term is fair only applies to non-core
terms. However, there may be some discretion when determining what constitutes a non-core
term, and the Consumers Association have admitted that any significant limit on a partys
obligations is capable of being judged unfair.21
The law to date has in some ways sought to ensure that the recipients of contracts are at least
aware that their transaction is subject to terms. In other ways it has inferred the weaker partys
best interests at the dispute stage in the face of their inability to protect their own best interests
at the contracting stage. Arguably this is unsatisfactory as contract terms will, in any case, only
be enforced or overthrown should a party take action. The party that is ignorant of their rights
and lacking confidence is less likely to do so. There is evidence, however, that the law is moving
in the right direction. While several bodies are now authorised to act (proactively) on behalf
of consumers22 there also is legislative change on the horizon which may just make it easier for
consumers to know of and assert their own rights.23
Hristina Petkova
As the law of contract develops, it becomes more complicated and intricate. Large companies
with detailed contracting requirements tend to dictate the way in which contract law evolves.
An issue that immediately emerges is if common law and statute only accommodate the
needs of parties with great bargaining powers, are consumers protected at all? Moreover,
when ticking the I accept the terms and conditions box, whose rules apply the rules of
common law or the rules of large companies? If we divide the consumers into three separate
categories - those who do not read the small print, those who read but do not understand
them, and those who understand them but is in no position to object to them, it is obvious
that whatever category of consumer, one adjective is always applicable: powerless. This essay
will explore the ways in which the law protects the average consumer. Firstly, the ways in
which the common law provides protection will be discussed. The discussion will focus on
cases concerning consumer rights and how (if at all) they are protected. The second means
of protection explored will be statutes and EU regulations, in particular the Unfair Contract
Terms Act 1997 (hereinafter UCTA 1977) and the Unfair Terms in Consumer Contracts
Regulations 1999 ( hereinafter UTCCR 1999). The main focus will be on the way they have
accommodated consumers needs.
The first rule of common law that will be explored is the incorporation of terms and exclusion clauses in the contract. The general rule comes from the case of LEstrange v F Graucob
Ltd 1 and it states that if a contractual document is signed, then the person signing it is bound
by the terms. It has been argued that LEstrange has been wrongly decided and that there
should have been some sort of protection for the consumer on the basis that she simply did
not agree to that particular term.2 In Maughan LJs view: It is unfortunate that the important
clause excluding conditions and warranties is in such small print.3
It is common practice for the terms to be in small print, on the bottom or on the back of the
page. This is one of the reasons why consumers do not take them into account. Moreover, it
almost seems as if these terms are not there to inform consumers of their rights and obligations, but rather to keep the companies conscious calm that they have duly done their job.
On the other hand, small print terms leave the impression that companies are trying to hide
the terms, rather than draw the consumers attention to them. As J.R Spencer argues, Mrs.
LEstrange might have refused to sign if the terms had been printed clearly where they could
1. 2 KB 394, [1934] All ER Rep 16
2. JR Spencer , Signature, Consent, and the Rule in LEstrange v.Graucob [1973]The Cambridge Law Journal 32
3. LEstrange (n 1) 407.
The incorporation by notice rule which may prove to be more consumer-friendly will be
explored in the following paragraph. In Parker v South Eastern Railway Co 5, the principles
of giving reasonable notice were discussed. The rule that concerns the purpose of this essay
is the one which states that a person may be bound by an exemption clause in a standard
form document, even though subjectively ignorant of its content, if the party seeking to rely
on the clause has done what was reasonably sufficient in the circumstances to bring it to the
other partys notice.6 This rule was further developed by the then Denning LJ in Spurling v
Bradshaw in which he said some clauses would need to be printed in red ink with a red hand
pointing to it before the notice could be held to be sufficient. 7 The red hand rule can be
regarded, as E. Macdonald puts it as a logical development of the common law, mirroring
the reactive nature of the common law system. She also argues the point that the result from
Parker and the red hand rule is an attempt to maintain a fair balance between the parties of
the contract.8
The following paragraph concerns the common law rules of construction. These principles
were the response of the Courts to overcome the difference between the strength of the bargaining powers of the parties. It was often the case that terms imposed on consumers were
unfair.9 In Alison Ltd v Wallsend Shipway and Engineering Co Ltd 10 , Scrutton LJ stated that
if a person is under a legal liability and wishes to get rid of it, he can only do so by using
clear words. Therefore, an exemption clause must exactly cover the liability, which it sought
to exclude.11 This rule is quite straightforward and fair. However, it is more often than never
that contract terms are not. The contra proferentem rule comes into play whenever there
is ambiguity within the contract. The rule operates against the party relying on the ambiguous term and in favor of the other party. The final rule of construction is when contracting
parties are excluding their liability for negligence (now largely covered by UCTA 1977). The
traditional approach of Courts towards such exclusions was to assume that it is inherently
improbable that the innocent party would consent to such terms.12 It is somewhat comforting to know that if a term was grossly unfair, the Courts would take matters into their hands.
However, this does not fully satisfy the customers right to fairness.
Based on the facts and opinions presented thus far, it is apparent that the Courts, try as they
might, is unable to provide satisfactory protection for the consumers needs. Common law is
4. LEstrange (n 1) 2.
5. [1877] 2 CPD 416 (CA)
6. J Beatson, A Burrows, J Cartwright, Ansons Law of Contract (29th edn, Oxford University Press 2010) 163, 185
7. [1956] 1 WLR 461 (CA) 466
8. Elizabeth Macdonald, The duty to give notice of unusual contract terms [1988] Journal of Business Law 375
9. Ansons Law of Contract (n 6)
10. [1927] 27 Ll L Rep 285 (CA)
11. Ansons Law of Contract (n 6)
12. Gillespie Bros. & Co. Ltd v Roy Bowles Transport Ltd [1972] EWCA Civ J1024-1, [1973] QB 400 [419] (Buckley LJ)
Lastly, the UTCCR 1999 will be explored especially its means of operation and the ways in
which it has enhanced consumer protection. The UTCCR 1999 operates only in consumer
contracts which itself is the first step to greater protection, moreover the Regulations are
solely applicable for terms that were not individually negotiated.18 This means that the main
scope of operation of the UTCCR 1999 is standard form contracts, which involves one party
being a consumer (or, as defined in reg. 3 a natural person).19 Where UTCCR 1999 applies,
the term is not automatically invalidated; instead a test of fairness is applied. Reg. 5 states
13. [1980] AC 827 (HL)
14. Ansons Law of Contract (n 6)
15. ibid
16. [1990] 1 AC 831 (HL) [1972] EWCA Civ J1024-1
17. George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] QB 284 [314] (Kerr LJ)
18. Unfair Terms in Consumer Contracts Regulations 1999, Reg 5(1).
19. ibid, Reg 3.
The conclusion is that, while there still might be missing gaps within the context of consumer
protection, there are prospects for filling them. UCTA 1977 and the UTCCR 1999 have been
proved to be effective in upholding consumers needs that were previously unprotected in
common law especially through the reasonableness and fairness tests. S. Brights conclusion, with which I agree, is that there is still an uneasy relationship between UCTA 1977 and
the UTCCR 1999; Although the two regimes are overlapping they operate differently, thus
generating complexity for both businesses and consumers seeking to clarify their positions.21
The obvious need to draw up comprehensive legislation, which reconciles UCTA 1977 and
the UTCCR 1999 must be addressed. However, it cannot be denied that contract law has significantly improved in terms of protecting consumers because of UCTA 1977 and the UTCCR 1999.The law of contract is the invisible environment in which consumer and business
transactions take place. In England and Wales the law is to be found on the statute books as
well as amongst the ratios of a wealth of cases. Laws are designed with a purpose in mind, but
this is not to say that the purpose is always consistent across laws or that the design is necessarily fit to achieve that purpose. One area where the law is put to the test is the scenario of a
business or consumer being presented with contract terms which they have little opportunity
to negotiate. As the above quotation indicates, this party may either be ignorant in relation to
the terms of the transaction, or impotent, or both. The problem for the judge or the legislator,
then, is to determine which principles should govern regulation, and what form of regulation
would be most effective, in cases where ones freedom to contract is formal at best.
20. Susan Bright, Winning the battle against unfair contract terms [2000] Legal Studies Vol 20 No 3, 331
21. ibid
Iulia Davidescu
Terms and conditions control most of our day to day transactions, no matter how trivial.
However, little importance is given to the choice of enforcing these terms into the contract.
Transactions seem to be executed more on the expectation of what the terms should entail
rather than careful consideration. Our modern transactions seem to be based on trust
between strangers but also on the assumption that if the conditions are not fair, certain
sanctions are going to be imposed.1 When a ticket, a delivery note or any other similar
document containing printed terms is received by a consumer, most of the times he chooses
to ignore it, either because he does not understand them or because he knows that he only
has the option to take it or leave it. This essay will evaluate whether the courts offer sufficient
protection to the intentions and expectations of the parties in the cases in which standard
terms are meant to be incorporated into the contract.
The party when deciding to accept the conditions is not in a position to compare those
terms with any others and there is also the presumption, that even if they would, the terms
would be just as bad since no company wants to lose profits by offering more rights to the
consumer.2 There is also serious imbalance in the parties rights and obligations. There is also
a certain lack of comprehension regarding the standard terms and a strong social pressure
not to make a fuss.3
David Slawson argues that since the standard terms are imposed rather than agreed upon,
they are mostly universally unfair.4The British courts have not taken this approach. This has
been assessed especially in the context of exemption clauses: which seek either to exclude
or limit liability on the person providing the terms. The court looks at whether the terms
have been incorporated into the contract, whether the exemption clause covers that specific
situation and whether any of the statutory legislation dealing with exemption clauses applies:
notably The Unfair Terms in Consumer Contracts Regulations 1999 and Unfair Contract
Terms Act 1977.
Firstly, the courts seek to decide whether the terms have been incorporated into the contract.
Incorporation can either take place by signature, by notice or by course of dealing.
The rule related to incorporation by signature is that the person signing a contract is bound
by its terms, as illustrated in LEstrange v F Graucob5. It is irrelevant if the conditions have
been read.
1. Hugh Collins, Regulating Contracts (2002)
2. W. David Slawson, Standard Form Contracts and the Democratic Control of Lawmaking Power (1971) 84
Harvard lR 529
3. Mindi Chen-Wishart, Contract Law (3rd edn, OUP 2010)
4. W. David Slawson, Standard Form Contracts and the Democratic Control of Lawmaking Power (1971) 84
Harvard lR 529
5. [1934] 2 KB 394
Kirsty Day
It could be said that people do not read terms and conditions on tickets and delivery notes.
They can be confusing and complicated and if someone did try to read, they could be nonnegotiable. This seems inherently unfair and the law has attempted, through the common
law, statute and other methods to protect vulnerable parties. In particular, consumers, as
these dealings tend to involve delivery notes and tickets as it usually involves buying or
purchasing something. Every kind of contract will have a term or condition in one form
or another, Condition being the most important as they go To the Root of the contract
and a breach of these will result in the entire contract collapsing as it is fundamental to its
functioning.
There are many mechanisms in deciding if a condition is enforceable or not. Most of the
time, it will be enforceable if none of the exceptions from statute or common law applies
or if a condition could be rebutted. So, in some cases, a party may refuse outside evidence
that could potentially rebut the contract (Parole Evidence Rule). The Common Law also
developed exceptions to this rule to protect weaker parties from being restrained to one
document. Outside evidence can be submitted if what the parties negotiated is not in the
contract or if they were misled into agreeing to the contract.
One of the most common terms in a contract, especially those involving consumers, are
exclusion clauses. These limit another partys liability and are also, typically, the most
complex and potentially hidden and are therefore, easily overlooked by consumers. Exclusion
(or limitation) clauses can be found in Common Law and Statute. In Common Law, you
must prove 3 things; first, that the clause has been incorporated into the contract, second,
that it covers or refers to the damage or loss concerned. It is then determined if the clause is
reasonable.
The incorporation of a clause is very similar to the incorporation of a term. In relation to
tickets, the clause should be drawn to the attention of the consumer openly. In the case of
Thornton v Shoe Lane Parking1 Lord Denning confirmed that if attention is not drawn to
the conditions then it will not be valid. In this case, once the claimant had the ticket, the
conditions it referred to were inside the car park and there was no way to read them before
getting the ticket; he was committed at the very moment when he put his money into the
machine.2 so here, there was no attention drawn to the conditions as they werent even
present. You had to enter into the contract before you saw them! Not only did the courts
recognise that people dont read the conditions but they affirmed that they must be clear.
Not only must the conditions on a ticket be apparent, they must also be expected to be on
1. [1971]2 Q.B.163
2. P169,C-D
Leith Gouta
Standard forms of contract enable the use of a uniform set of printed condition time and
time again and for a large number of persons. As eloquently put by Furmston, [t]he process
of mass production and distribution, which has largely supplemented individual effort, has
introduced the mass contract.1 The evident benefit of such a form of contract is its cost and
time effectiveness compared to individually negotiated contracts. It eliminates substantial
attorney fees and generally facilitates commerce.
The flip-side of the coin with this form of contract is that [t]hey have been dictated by that
party whose bargaining power [..] enables him to say : if you want these goods or services at
all, these are the only terms on which they are obtainable. Take it or leave.2 However, it is well
known that people hardly ever read printed conditions on a ticket or delivery note or similar
document. If they do, they would probably not understand them.3 Considering the uneasy
relationship between standard form contract and unfair terms, the essay will discuss how the
law responded to this relationship and how rules and concepts were developed in order to
counteract unfair terms in standard form contract. The second part will give an account of
proposals of reform.
The present law imposes a threefold burden on a party alleging the use of an exclusion clause
in a contract. The term must have been (1) incorporated, (2) construed accordingly and (3)
must not contravene to statutory regulations.
A term may be incorporated by (a) signature, (b) by notice, or (c) by custom. The law has taken
a rigid stance concerning the rule that, n the absence of fraud, misrepresentation4, or non est
factum, a person is bound by a document he signs. It is irrelevant if he has read it or not.. This
leads to substantive unfairness as in the case of LEstrange v Gaucob5. J.R. Spencer attacked this
rule arguing that it conflicts with the fundamental theory of contract law. Contracts, he said,
are supposed to based on agreement; but the rule in LEstrange may bind a person who has
not agreed (because he has not read or not understood) the document which he has signed6.
Nevertheless, and despite numerous attacks of this rule, it remains unchanged and has been
reaffirmed recently in Peekay Intermark Ltd v Australia and New Zealand Banking Group Ltd7.
In order to incorporate terms by notice, the party intending to do so must overcome three
hurdles. The first is that notice must be given at or before the time of concluding the contract.
In Thornton v Shoe Lane Parking, an exemption clause was to be found inside a car park.
1. Furmston.M. Cheshire Fifoot & Furmston The Law of Contract at 24
2. Schroeder Music Publishing Co ltd v Macaulay [1974] 3 All ER 616 at 524 per Lord Diplock
3. Interfoto Picture Library v Stiletto visual Programmes Ltd [1989] QB 443
4. S3 Misrepresentation Act 1967
5. [1934] 2 KB 394
6. Attiyah.P. Essays on Contract (1986) at 109
7. [2006] EWCA Civ 386
16. Law Commission: Unfair Terms in Contracts A joint consultation paper (2001) at 11
17. Section 5(1)
18. Regulation 5(2)
19. Mckendrick (2011) p 465
20. [2002] 1 AC 481
21. OFT v Foxtons Ltd [2009] EWCA Civ 288
22. Bright. S. Unfairness and the Consumer Contract Regulations (2007) at 176
Lucia Ferrer
Consumers are constantly faced with standard form contracts containing endless lists of terms
and conditions. In such a situation, the consumer usually holds no bargaining power, a lack of
comprehension leading to substantive unfairness. This monopoly of power,1 between business
and consumer creates a serious disadvantage for consumers, as highlighted in the presented
quotation. Nevertheless, these contracts facilitate the commercial world through lowering
legal costs; increasing observing partys obligations; excluding liability against the business,
society as a whole benefits from the use of standard contracts.2
The law has greatly recognized the problems posed by the enforcement of terms against more
vulnerable consumers. In order to demonstrate this, the techniques available to courts when
incorporating and interpreting terms into a contract will be assessed, the relevant Statutes
namely: The Unfair Contract Terms Act 1977 (UCTA) and The Unfair Terms in Consumer
Contract Regulations 1999 (UTCCR) will be analysed, and the essay will assess the significant
development in consumer protection while highlighting areas that require further development
of the law.
Determining whether a term has been incorporated into the contract is the first area of
judicial intervention in consumer protection. The most explicit method of incorporation is
through signature. In LEstrange v Graucob3 the court took the position that since the terms
had been agreed to with a signature, they had effectively been incorporated into the contract.
However, an exception occurred in Curtis v. Chemical Cleaning and Dyeing Co Ltd4, where the
store attendant clarified the meaning of a wide exclusion clause to the customer. The court
determined the oral warranty superseded the terms incorporated via signature.
The second method of incorporation is notice. Through the development of case law, there are
three main factors to consider. Olley v Marlborough Court5 determined that providing notice of
an exclusion clause after the contract had been entered into is not sufficient notice. Therefore
the term was not incorporated into the contract. Further, Chapelton v Barry Urban District
Council6 confirms that notice must be in a contractual document. Lastly, the degree of notice
1. David Yates, Exclusion Clauses in Contracts 2nd Edition (Sweet & Maxwell 1982) 5
2. Freidrich Kessler, Contracts of Adhesion-Some Thoughts About Freedom to Contract (1994) 42 CLR
629, 632
3. [1934] 2 K.B. 394
4. [1951] 1 KB 805
5. [1949] 1 KB 532
6. [1940] 1 K.B. 532
limiting liability, the doubt is resolved by construing them against the party. Yates (no 1) 137
11. [1972] 2 QB 71
12. Yates (no 1) 196
13. Yates (no 1) 267
14. Jonathan Morgan, Great Debates in Contract Law (Palgrave MacMillan 2012) 86
15. Lord Diplock - Schroeder v Macaulay [1974] 1 WLR 1308
20. Susan Bright, Winning the battle against unfair contract terms (2000) 20 Legal Studies 331, 352
21. Law Commission Report 292
22. Yates (no 1) 6 quoting Lord Diplock in Schroeder Publishing Co. Ltd v Macaulay [1974] 1 WLR 1308
23. Elizabeth MacDonald, Mapping the Unfair Contract Terms Act 1977 and the Directive on unfair terms
Mustafa El-Mumin
Standard forms, often cited as Contracts of Adhesion1, have been severely criticised in
English Law. They have been characterised as documents that inhibit consumers by forcing
the will of mighty enterprises upon them through a take-it-or-leave-it basis. Further,
they ensure these forms and the terms included are lengthy and laced with legal jargon
to discourage the common consumer from reading - or understanding - the full terms
stipulated, often in small print. Yet, these immoral practices by corporations have been
recognised by the law, whereby several methods have been determined in order to ascertain
the enforceability of the terms in such standard forms in order to protect the consumer.
The standard form has arisen out ofmercantile trade, settled over years by negotiations of
commercial interests, development of commodity trading2, and the reduction of costs of doing business3 whereby their wide usage has introduced the connotation of fair and reasonable terms. This view has been reaffirmed by the House of Lords who stated standard forms
moulded under the pressures ofnegotiation, competition and public opinion werepresumptively fair4. Yet, when these standard forms are used on consumers - rather than equal bargaining partners - the courts have adopted an alternate, opposing view point. Lord Diplock,
the champion against court intervention in corporate standard forms5, has stated that no presumptions of fairness can be brought forth with regards to consumer standard forms, where
vigilance on the part of the court has to be exercised in order to protect the consumer6. The
argument against consumer standard forms follows the logic that, due to the common law,
the law has over-privileged documents, where a document containing contractual terms is
signed ... the party signing it is bound and it is wholly immaterial whether he has read the
document or not7, and it this fundamental contractual principle that enterprises are exploiting against consumers.
Yet, it has been rebutted by Scwartz and Wilde8, that as long as consumers read the terms and
conditions then the firms will have to adjust and moderate their terms in order to attain continued business, which will be mutually beneficial to both consumers and the firms. However, I believe that this argument is futile and only holds validity in theory with no substantive support on a practical or economic sense. It is entirely unrealistic9 to expect consumers
to read all the terms and conditions encountered in daily life on these standard forms, which
1. F. Kessler, Contracts of Adhesion Some Thoughts about Freedom of Contract 91943) 43 Columbia LR 629
2. R. Cranston, The Rise and Rise of Standard Form Contracts: International Commodity Sales 1800-1930 in Jan Hellney in Memoriam
- Commercial Law Challenges in the 21st Century (Stockholm centre for Commercial Law, 2007)
3. Schroeder Music Publishing Co v Macaulay [1974] 1 WLR 1308, 1316 per Lord Diplock
4. Esso Petroleium Co Ltd v Harpers Garage (Stourport) Ltd [1968] AC 269, 333 per Lord Wilberforce
5. The only merits of the case are that parties who have bargained on equal terms in a free market should stick to their agreements,
The Maratha Envoy [1978] AC 1, 8
6. Schroder Music Publishing Co v Macaulay [1974] 1 WLR 1308
7. LEstrange v F Graucob Ltd [1934] 2 KB 394, 403 per Scrutton LJ.
8. A. Schwartz & L.L. Wilde, Intervening in Markets on the Basis of Imperfect Information: A legal and Economic Analysis (1979) 127
Univ Pennsylvania LR 630
9. J. Morgan,Great Debates in Contract Law(Palgrave Macmillan, 2012), p. 86
Rachel Epstein
In order for a term to be effective it must be incorporated into the contract between the
parties. The incorporation of terms is a contentious issue especially with the development of
standard form contracts. The idea of a freely negotiated agreement between the parties has
given way to a uniform set of printed conditions which can be used time and time again, for
a large number of persons, and at less cost than an individually negotiated contract.1 This
type of contract adheres well to the laissez faire English law principle of freedom to contract,
but the problem arises where the document is drawn up by only one of the parties, which is
usually the more powerful party, who may choose which terms to include and decide how
risk is to be allocated. This significant imbalance of power between the parties means that
the freedom to contract is really one-sided, and the weaker party is usually left with relatively
few rights and the inability to negotiate terms.
The quote at hand addresses this issue - the unequal bargaining power of the consumer
within contracts. Although the courts are reluctant to interfere with a partys freedom to
contract, as protectors of justice it is their job to protect the weak against the oppressor, and
ensure equality amongst parties in law. The courts have responded to the inequalities faced
by the weaker party by imposing strict requirements for the incorporation of terms within
the contract, and by refusing to incorporate those terms that fail to satisfy the requirements.
These common law principles are limited and may not always be capable of providing a just
solution for a contract where freedom of contract exists only on one side, but the Unfair
Contract Terms Act 1977 and Unfair Terms in Consumer Contracts Regulations 1999 were
able to fill the gaps by supplementing the common law and establishing an extra layer of
consumer protection.
The courts have recognised three ways for a term to be incorporated into a contract: a)
signature, b) through a course of dealing, and c) sufficient notice. The simplest method
of incorporation is signature. A party who signs a document which contains contractual
terms is normally bound by them even though that person may not have read them or aware
of their exact legal effect.2 Moore-Bick L.J. reinforced the significance of this principle by
describing it as,
an important principle of English life which underpins the whole commercial life; any erosion
of it would have serious repercussions far beyond the business community.3
While the rule may promote certainty and protect the interests of third parties who rely on
1. Beatson, J, A Burrows, and J Cartwright. Ansons Law of Contract. 29th. NYC: Oxford University Press,
(2000) p.171
2. LEstrange v. F. Graucob Ltd. (1934) 2 KB 394
3. Peekay Intermark Ltd. v. Australia and New Zealand Banking Group Ltd. (2006) EWCA Civ 386, (2006) 2
Lloyds Rep 511 (2006) 1 CLC 582 at (43)
4. Spencer, JR. Signature, Consent and the Rule in LEstrange v F Graucob Ltd, [1973] Cambridge
Law p.6
21. ibid
22. Contra proferentem means the courts construe a clause against the party relying on it. This is a matter
of interpretation of a contract, which is only relevant if a clause was validly incorporated into the contract.
Refer to Canada Steamship Lines Ltd. v. The King (1952) AC 292 for guidelines on interpretation of terms.
23. s.5 UCTA 1977
24. s.11 & sch.2 UCTA 1977
25. Reg. 5 & sch. 2 UTCCR 1995
26. AEG (UK) Ltd. v. Logic Resources Ltd. (1996) CLC 265, 277
27. Hardwick Game Farm v. Suffolk Agricultural Poultry Producers Association (1966) 1 W.L.R. 287, 339-340
28. Clarke, Malcolm. Notice of Contractual Terms. (1976) The Cambridge Law Journal, 35, p. 81
29. Beatson, J, A Burrows, and J Cartwright. Ansons Law of Contract. 29th. NYC: Oxford University Press,
(2000) p.172
30. BCCI SA v Ali (2001) UKHL 8, (2002) 1 AC 251 at (60)
Alan Schweber
The advent of consumer protection laws such as the Unfair Contract Terms Act
1977 (UCTA) or the later implementation of EC Directive 93/13/EC which produced the
Unfair Terms in Consumer Contracts Regulations 1999 (Regulations) came about in the
shadow of exclusion and limitation of liability clauses in contracts. The development of
these clauses was a natural response the changing nature of business sophistication of the
20th century. As parties began to deal on a more large-scale basis, contracts needed to drawn
up to regulate business amongst parties; chiefly to regulate the risk and liability that could
arise from contractual performance. The financial industry in particular has garnered much
pre-eminence as one of the main drivers of modern capitalism. The working flow of credit
is essential to the purchases and costs of businesses today. Whilst courts have been reluctant
to offer protection to sophisticated parties that engage in commercial transactions regarding
banking institutions (for adherence to freedom of contract ideology and public policy1),
arguably not enough protection has been afforded to individual consumers vis--vis banks
and other financial services providers. This essay will seek to focus to explain the extent of
the law that governs enforceability of unfair/unreasonable terms, whilst engaging in analysis
of its applications to the financial services sector. Beginning with the case of Director of
the Office of Fair Trading v First National Bank plc [2001] UKHL 52, [2002] 1 AC 481, and
looking at the subsequent case law and legislation, it will be concluded that the current UK
law is not adequately applicable the banking and financial sectors. The law, whilst appearing
to be a great protector of small businesses and individual consumers, falls short of actually
having strong effect in the event of unfair or unreasonable bank terms.
The earliest form of judicial control of exclusion clauses can be found in the common
law. There are two forms by which it has sought to determine the validity of said clauses.
The first is by incorporation of terms, of which contains five tests. Beginning with signature,
it is held that once you sign a contract you are bound by its terms.2 The second is one of
notice - here the exclusion clause must be introduced before or at the time of contract,3 and
be reasonably brought to the attention of the contracting party.4 Third, incorporation can be
completed through terms on a ticket. Sufficient attention must be brought to the terms and
conditions on it and can only be valid in circumstances which a reasonable person would
1. IFE Fund SA v Goldman Sachs International [2006] EWHC 2887, confirmed [2007] EWCA Civ 811;
Springwell Navigation Corp. v. JP Morgan Chase Bank (formerly Chase Manhattan Bank) [2010] EWCA Civ
1221; Watford Electronics Ltd v Sanderson CFL Ltd [2001] EWCA Civ 317
2. LEstrange v F. Graucob Ltd [1934] 2 KB 394; however, a signature could be invalidated by an oral overriding
warranty such as a misrepresentation that would have falsely induced the signature (Curtis v Chemical
Cleaning & Dyeing Co [1951] 1 K.B. 805)
3. Olley v Marlborough Court [1949] 1 KB 532
4. Parker v South Eastern Railway (1877) C.P.D. 416. This is an objective requirement; those who are
illiterate will not have a defence if there is reasonable notice brought to a contracting partys attention
(Thompson v LMS Railway Co.)
5. Chapelton v Barry Urban District Council [1940] 1 K.B. 532. The courts standards are very high in this
matter, as parties must go to great lengths to bring exclusion clauses in tickets to their contracting partys
attention, especially in the case of car parks where signs of liability exclusion must be made visible and
explicitly referenced at the time of contracting (Thorton v Shoe Lane Parking)
6. Dillon v Baltic Shipping Co. Ltd. (1993) 176 CLR 344, 111 ALR 289, 67 ALJR 228
7. Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] 1 Q.B. 433
8. J Spurling v Bradshaw [1956] 1 Q.B. 742: In cases where there was no consistency in the way in which
exclusion clauses were made notice of, the courts have held that there will be no incorporation of said
terms (McCutcheon v MacBrayne, Ltd [1956] 2 All E.R. 121). In consumer contract case, the threshold for
number of previous dealings is very high (Hollier v. Rambler Motors (AMC) Ltd [1972] 2 QB 71).
9. See Appendix at section A, subsection 1 for further case law and analysis
10. See Appendix at section A, subsection 2 for further case law and analysis
11. Ibid, specifically BCCI v Ali in reference to Canada Steamship interpretation guidelines
12. Trietel: The Law of Contract, 12th edn Thompson Street & Maxwell, edited by Edwin Peel: 2007, 266
13. [1988] 1 WLR 321
14. Section 11 George Mitchell v Finney Lock Seeds [1983] 2 A.C. 803; Schedule 2 Phillips Products v
Hyland [1987] 2 All E.R. 620; Section 3 St. Albans City and District Council v International Computers Ltd
[1995] FSR 686
15. [2010] EWHC 211 (Comm), 2008 Folio 1231
16. Financial Markets and Services Act 2000 Regulations
17. Ibid at [68]
18. Ibid at [73-76]
19. Supra note 1, as well as certain occasion the courts will use the Smith v Eric Bush criteria in concurrence
31. Ewan McKendrick, Contract Law: Text Cases and Materials, 5th edn OUP:2012, 485; summarising Abbey
National at [57]
32. Ibid summarising Abbey National at [113]
33. Susan Bright, Winning the Battle Against Unfair Terms, (2000) 20 Legal Studies 331, 333
34. Simon Whittaker, Unfair Contract Terms, Unfair Prices and Bank Charges, (2011) MLR 74(1) 106-134,
at p. 122
35. Law Commission No 292 and Scottish Law Commission No 199, paras. [9-17] proposal to join the
UCTA and UTCCR into one central Act
36. Special caveat; this fact only relates to American cases as finding examples of UK cases proved
unsuccessful - http://money.cnn.com/2009/10/08/news/economy/Predatory_lending_lawsuits_
increase/index.htm
37. http://news.bbc.co.uk/1/hi/business/8596908.stm
38. Office of Fair Trading, Fiancial Services Strategy, a consultation document, April 2009
39. Reference to the Abbey National ruling
It was a bleak winter for our law of contractFaced with this abuse of power - by the strong
against the weak - by the use of the small print of the conditions - the judges did what they
could to put a curb upon it. They still had before them the idol, freedom of contract. They
still knelt down and worshipped it but they concealed under their cloaks a secret weapon.1
There has been much debate on whether, and to what extent, courts should enforce standard
form contracts. On one hand there are the traditional concerns of promoting freedom
and certainty of contract.2 On the other hand there is the concern to curb the potential for
unconscionable agreements concluded between parties of unequal barging power.3 While
vitiating factors such as misrepresentation, mistake, and duress operate to control procedural
unfairness the nature of standard form contracts and the circumstances within which they are
agreed combine to produce a substitutive unfairness, which often falls outside the parameters
of actions relying on such vitiating factors.4 This weakness, the result of the common laws
historical preoccupation with libertarian ideals,5 has been increasingly exposed by the
proliferation of standard form contracts in consumer transactions over the past one hundred
years.6 In response common law developed two key mechanisms through which to police the
use of standard form contracts: incorporation and interpretation.7 More recently, parliament
has sought to bolster the courts ability to redress substantive unfairness particularly in
1. George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] Q.B. 284, per Lord Denning at 297.
2. Concerns which grew from the philosophical and economic milieu of the late eighteenth century and to which the
judiciary were predisposed. Samuel Williston, Freedom of Contract, Cornell Law Quarterly 6 (1921): 365 at 366-369;
James Gordley, The Philosophical Origins of Modern Contract Doctrine (Oxford: Clarendon Press, 1991) esp. 214-229.
John Griffith, The Politics of the Judiciary (Manchester: Manchester University Press, 1977). For a critque of the traditional
narrative see; David Lieberman, Contract before Freedom of Contract, in The State and Freedom of Contract, 89-121
(Stanford: Stanford University Press, 1998).
3. In George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd, Lord Denning MR gave a characteristically colorful
summary of the debate and outlined the development of common law and statutory remedies by comparing freedom of
contract with oppression of the weak in the context of exclusion clauses. 296-301. See the epigraph.
4. See below and Mindy Chen-Wishart, Contract Law, Fourth Edition (Oxford: Oxford University Press, 2012) 370.
5. See above note 2 and P.S. Atiyah, The Rise and Fall of Freedom of Contract (Oxford: Clarendon Press, 1985).
6. Martin Cutts and Chrissie Maher, Small Print: the Language and Layout of Consumer Contracts: A Report to the National
Consumer Council (London: National Consumer Council, 1983). This trend is not restricted to England and Wales. More
recently, the National Consumer Law Center has estimated that over 80% of contracts with internet service providers
in Massachusetts are standard form. National Consumer Law Center, Establishing Billing and Termination Practices
for Telecommunications Carriers, (Boston: Commonwealth of Massachusetts Department of Telecommunications and
Enegry, 2006) 3.
7. The principles of interpretation have almost exclusively been developed in case law relating to exclusion and liability
clauses: Glynn v Margetson & Co. [1893] A.C. 351; London and North Western Railway Co. v Neilson [1922] 2 A.C. 263;
Cunard Steamship Co. Ltd. v Buerger [1927] A.C. 1; Canada Steamship Lines Ltd. v The King [1952] A.C. 192; Sze Hai
Tong Bank Ltd. v Rambler Cycle Co. Ltd. [1959] A.C. 576; Levison v Patent Steam Carpet Cleaning Co. Ltd. [1978] Q.B. 69;
Ailsa Craig Fishing Co. Ltd. v Malvern Fishing Co. Ltd. [1983] 1 All E.R. 101; George Mitchell (Chesterhall) Ltd. v Finney
Lock Seeds Ltd. [1983] 2 A.C. 803.
George Mitchell (Chesterhall) Ltd. v Finney Lock Seeds Ltd. [1983] 2 A.C. 803
8. i.e. Unfair Contract Terms Act 1977 [http://www.legislation.gov.uk/ukpga/1977/50] and The Unfair Terms in Consumer
Contracts Regulations 1999 [http://www.legislation.gov.uk/uksi/1999/2083/contents/made].
9. In one sense standard form contracts could be said to exist without consensus ad idem in a broad sense however, on
most occasions the parties intend to enter into a legally binding agreement for exchange of goods or services and are
only without agreement to the [same] thing in respect of the conditions under which the contract they consent is to be
executed. As to the requirement and extent of consensus ad idem see; Household Fire and Carriage Accident Insurance
Co. Ltd. v Grant (1879) 4 Ex D 216; Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256; R. Austen-Baker, Gilmore
and the Strange Case of the Failure of Contract to Die After All Journal of Contract Law 18 (2002): 1. cf. the American
approach in Baltimore & Ohio R. Co. v United States (1923).
10. When a document containing contractual terms is signed, then, in the absence of fraud, or, I will add,
misrepresentation, the party signing it is bound, and it is wholly immaterial whether he has read the document or not.
LEstrange v E. Graucon Ltd. [1934] 2 K.B. 394 per Scrutton LJ at 403; Peekay Intermark Ltd. v Australia and New Zealand
Banking Group Ltd. [2006] 2 Lloyds Rep. 511.
11. Research commissioned for the Crowther Committee in 1971 suggested that over 50% of consumers concluding
hire-purchase agreements did not properly read the documents. Commitee on Consumer Credit, Survey of the Past
and Present Borrowing Patterns of Consumers in Britian (London: Department of Trade and Industry, 1971) 17. A 1980
report by the National Consumer Council revealed that only 26% of consumers entering into a hire purchase or credit
sale agreement had read the entire agreement. National Consumer Council, Consumers and Credit (London: National
Consumer Council, 1980) 216. More recently, the Office of Fair Trading found that just 23% of consumers had a good
read of the contract or its terms and conditions before signing. Gavin Ellison, Quantitative Survey of Consumers Appendix
D to Consumer Contracts Report (London: Office of Fair Trading, 2011) 31.
12. Ibid.
13. Merchants of digital content and computer software uniformaly adopt the take it or leave it approcah leaving no
room for negeoation, however these catagories of contract were the less likely to result in consumer dissatiffaction or
complaints. Office of Fair Trading, Consumer Contracts, (London: Office of Fair Trading, 2011).
14. Granville Oil and Chemicals Ltd. v Davies Turner and Co. Ltd. [2003] 1 All E.R. 819; Watford Electronics Ltd. v
Sanderson CFL Ltd. [2001] IP & T 588
15. The use of standard form contracts by small businesses is officially encouraged in Australia for these reasons:
Department of Industry, Innovation, Science, Research, and Tertiary Education, Working with Contracts, (Canberra:
Commonwealth Government, 2012) at 23-24. cf. the Law Commissions recommendations that contractual relations
between small and medium enterpriese should be govenrned by similar principles used in the policing of consumer
contracts: The Law Commission and The Scottish Law Commission, Unfair Terms in Contracts (London: Her Majestys
Stationery Office, 2005) at 4, 14 and esp. 15-17 [Law Com. No. 292, Scot. Law Com. No. 199].
16. Butler Machine Tool Co Ltd v Ex-Cell-O Corporation (England) Ltd. [1979] WLR 401.
17. The power to override exemption clauses found to be unreasonable had previously been introduced in the case of
implied terms in the sale of goods by the Supply of Goods (Implied Terms) Act 1973. Similar powers now exist in section
55 of the Sale of Goods Act 1979. The UCTA however, provides more extensive controls to a broader category of contracts
and is therefore discussed here more fully.
18. But section 13(1) includes clauses making enforcement of liability subject to compliance with a condition, clauses
excluding or limiting any right or remedy that would otherwise be available, and clauses restricting or excluding rules of
evidence or procedure. See: Stewart Gill Ltd. v Horatio Myer & Co. Ltd.[1992] 1 Q.B. 600. Terms which purport to modify
expected obligations are also covered by section 13: Smith v Eric S. Bush [1990] 1 A.C. 831.
19. Under section 7 of the Electronic Communications Act 2000 electronic signatures are valid instruments of incorporation.
20. Terms may also be incorporated by the importance attached test: City and Westminster Properties (1934) Ltd. v Mudd
[1959] Ch. 129 and may be found enforceable although not incorporated by the implication of a collateral contract:
Evans & Son (Portsmouth) Ltd. v Andrea Merzario Ltd. [1976] 2 All E.R. 930.
21. Parker v South Eastern Railway [1877] 2 C.P.D. 416; Chapelton v Barry Urban District Council [1940] 1 K.B. 532;
Olley v Marlborough Court Hotel [1949] 1 K.B. 532; Thornton v Shoe Lane Parking Ltd. [1971] 2 QB 163; Grogan v Robin
Meredith Plant Hire
[1996] C.L.C. 127; Photolibrary Group Ltd (t/a Garden Picture Library) & Ors v Burda Senator Verlag GmbH & Ors
[2008] 2 All E.R. 881. For a useful general summary of the key decisions see: Claire Strickland, Tickets Please!, (Legal
Executive, February 2003): 20.
22. Parker v South Eastern Railway; Gibaud v Great Eastern Railway Company [1921] 2 K.B. 426; OBrien v Mirror Group
Newspapers Ltd. [2001] E.W.C.A. Civ. 1279.
23. the more unreasonable a clause is, the greater the notice which must be given of it. Some clauses which I have seen
would need to be printed in red ink on the face of the document with a red hand pointing to it before the notice could
be held to be sufficient. J. Spurling Ltd. v Bradshaw [1956] 1 W.L.R. 461 per Denning LJ at 465; Parker v South Eastern
Railway; Interfoto Picture Library Ltd. v Stiletto Visual Programmes Ltd. [1989] Q.B. 433; Ocean Chemical Transport Inc.
v Exnor Craggs Ltd. [2000] 1 All E.R. 519. For insight of the reasonable test in operation see: Kaye v Nu Skin U.K. Ltd.
[2012] C.T.L.C. 69 here a clause providing that disputes were to be resolved by arbitration in Utah was held to not to
be unreasonable or onerous. Elizabeth Macdonald, The Duty to Give Notice of Unusual Contract Terms, Journal of
Business Law, (September 1988): 375.
24. McCutcheon v David MacBrayne Ltd. [1964] 1 Lloyds Rep. 16; Hardwick Game Farm v Suffolk Agricultural and
Poultry Producers Association Ltd. [1969] 2 A.C. 31; Petrotrade Inc. v Texaco Ltd. [2002] 1 W.L.R. 947; Balmoral Group
Ltd. v Borealis Ltd. & Ors. [2006] 2 Lloyds Rep. 629.
25. Hollier v Rambler Motors (AMC) Ltd. [1972] 2 Q.B. 71; Eric Barendt, Exemption Clauses: Incorporation and
Interpretation, The Modern Law Review 35, no. 6 (November 1972): 644.
26. Linda Mulcahy, Contract Law in Perspective (Oxford: Routledge, 2008) 160; WN Hillas & Co. Ltd. v Arcos Ltd. (1932)
147 L.T. 503.
27. British Crane Hire Corporation Ltd. v Ipswich Plant Hire Ltd. [1973] Q.B. 303 cf. Scheps v Fine Art Logistic Ltd
[2007] E.W.H.C. 541 (Q.B.); Richard Austen-Baker, Implied Terms in English Contract Law (Cheltenham: Edward Elgar
Publishing, 2011) at 79-99.
28. Beck and Co. v Szymanowski and Co. [1924] A.C. 43; Houghton v Trafalgar Insurance Co. Ltd. [1954] 1 Q.B. 247.
The contra proferentem rule is now expressly incorporated in relation to consumer contracts in the Unfair Terms in
Consumer Contracts Regulations 1999, SI 1999/2083, reg. 7(2).
29. Andrews Bros. (Bournemouth) Ltd. v Singer & Co. Ltd. [1934] 1 K.B. 17.
30. Canada Steamship Lines v The King [1952] A.C. 192 per Lord Morton at 208; White v John Warwick Co. Ltd. [1953]
1 W.L.R. 1285. cf. the more relaxed approach in recent cases: Investors Compensation Scheme Ltd. v West Bromwhich
Building Society [1998] 1 W.L.R. 898; HIH Casualty & General Insurance Ltd. v Chase Manhattan Bank [2003] 1 All E.R.
349. Although: Monarch Airlines Ltd. v London Luton Airport Ltd. [1997] C.L.C. 698; E.E. Caledonia Ltd. v Orbit Valve
Co. plc. [1994] 1 W.L.R 1515.
31. Ailsa Craig Fishing Co. Ltd. v Malvern Fishing Co. Ltd. [1983] 1 W.L.R 964 per Lord Wilberforce at 966; George
Mitchell v Finney Lock Seeds [1983] 2 A.C. 803; BHP Petroleum v British Steel [2000] 2 All E.R. 133. cf. the approach
taken by the High Court of Australia in Darlington Futures Ltd. v Delco Australia Pty. Ltd. (1986) 161 C.L.R. 500; John
Kidd, Exclusion and Limitation Clauses in the Australian High Court, The Modern Law Review 50, no. 7 (November
1987): 952.
32. Other loss or damage includes property damages and financial loss: Robinson v P.R. Jones (Contractors) Ltd. [2011]
3 W.L.R. 815.
33. Dealing as a consumer is defined in UCTA 1977 s. 12 and clarified by the Court of Appeal in R. & B. Customs
Brokers Co. Ltd. v United Dominions Trust Ltd. [1988] 1 W.L.R. 321 although not without criticism esp. cf. the same
courts definition of in the course of a business in Stevenson v Rogers [1999] 2 W.L.R. 1064. The argument to harmonize
these two seemingly apposite definitions was rejected in Feldarol Foundry plc. v Hermes Leasing (London) Ltd. (2004)
101 (24) L.S.G. 32.
34. UCTA 1977 s. 6, s. 7, s. 12; SGA 1979 ss. 13-15; SGSA 1982 s. 2; Southwark London Borough Council v IMB U.K. Ltd.
[2011] 135 Con. L.R. 136.
35. A distinction reflected in the case law: Granville Oil and Chemicals Ltd. v Davies Turner and Co. Ltd. [2003] 1 All E.R.
819; Watford Electronics Ltd. v Sanderson CFL Ltd. [2001] IP & T 588.
36. UTCCR reg. 5(1).
37. See above n. 11; cf. Stewart Macaulay, Non-Contractual Relations in Business: A Preliminary Study, American
Sociological Review 28, no. 1 (February 1963): 55.
48. Ellison, Quantitative Survey of Consumers Appendix D to Consumer Contracts Report, at 13.