ALI circulates revisions to Tentative Draft No. 2 of the Restatement of the Law, Consumer Contracts

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On June 22, 2022, the American Law Institute (“ALI”) circulated minor (mostly technical) revisions to Tentative Draft No. 2 of the Restatement of the Law, Consumer Contracts (the “Restatement”).

The Restatement was approved last month at ALI’s 2022 Annual Meeting, subject to minor changes agreed to by members at the Annual Meeting, the most notable of which is the addition of a new section on “Interpretation and Construction of Consumer Contracts.” The Restatement sets forth a series of rules that are intended to represent the current black letter law for contracts between businesses and consumers.

Key changes to the Tentative Draft No. 2 include:

  • Clarification in the Introduction that the law on consumer contracts is still developing, and the “Restatement does not seek to cement the rules governing this body of law and stifle their evolution.”
  • Addition of a new Section 4 titled “Interpretation and Construction of Consumer Contracts” and a renumbering of the sections that follow. The Interpretation section’s black letter law states that (a) a consumer contract imposes a non-disclaimable duty of good faith and fair dealing on each party, (b) in choosing among the reasonable meanings of a standard contract term, the meaning which operates against the business is preferred, (c) ambiguities in notices in the adoption process are resolved against the business, and (d) standard contract terms are interpreted in a manner that effectuates the reasonable expectations of the consumer. The comments within the new section are based on language from the Restatement of the Law Second, Contracts and comments previously found in other sections of Tentative Draft No. 2 which have now been moved to Section 4.
  • Addition of “Reasonable” as a defined term in the Section 1 definitions and a comment on the reasonableness standard, which is a fact-intensive analysis based on the totality of the circumstances.
  • Clarification in Section 2 (Adoption of the Standard Contract Terms) between the conceptual meaning of “adoption of term” as compared to “assent to contractual relationship.”
  • Clarification in the Adoption Section (previously § 5 and now renumbered as § 6) that satisfaction of the adoption process does not prevent a finding of substantive or procedural unconscionability.
  • An explanation in the section regarding Standard Contract Terms and the Parol Evidence Rule” (previously § 8 and now renumbered as § 9) that the section “is not a complete statement of the parol evidence rules and does not supplant or derogate from other limitations on the parol evidence rule that might apply.”

ALI has set an August 1, 2022 deadline for any comments on the changes by project participants for the Restatement and 2022 Annual Meeting attendees. (We have not provided the text of the proposed revisions or a summary prepared by ALI because these items are only available to ALI members.)

In addition to our blog posts about the Restatement, a recent episode of our Consumer Finance Monitor Podcast featured a discussion of the Restatement with Ballard Spahr’s Alan Kaplinsky (who is on the ALI Board of Advisers to the new Restatement) and special guest Steven Weise from the ALI Council.

The Restatement applies to all contracts with consumers pertaining to the sale of goods and services to the extent that it is applied by courts. It is critically important that companies that enter into contracts with consumers, particularly online, become knowledgeable about the Restatement and revise their contracts and procedures for entering into and changing terms of contracts so that they conform with the Restatement. Otherwise, companies run the risk that their contracts with consumers will not be enforced by courts.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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