Wednesday, January 27, 2010

Surreal Contracts

Contract law is one of the fundamental building blocks or our free-market democratic society. When people enter into a contract, they have entered into a mutual agreement for whatever action they have agreed to, such as buying a car or remodeling a house. Contracts, or at least some people claim they are, are used when you purchase a cell phone plan. Over at the Technology Liberation Front Adam Thierer wrote: "What is All This Nonsense about Smartphone Early Termination Fees?" The theme of his article is that early termination fees are a necessary business decision by the cell phone companies to recoup the cost of selling their phones below cost to attract customers. I won't be discussing that issue here.

What I will be discussing is his misplaced comment that: "AND THEN THEY FORM A CONTRACT WITH THE BUYER TO MAKE THE DEAL WORK. And that contract obligates both sides to live up to their end of the deal." Technically, Adam is correct - people negotiate a contract that defines the obligations of both parties to assure that the agreement is carried out. Unfortunately the reality of the situation, from my point of view, is that cell phone contracts are NOT valid contracts.

First, has anyone ever heard of an off-the-street consumer walking into the friendly neighborhood cell phone store negotiating (forming) a "contract"? Do the cell phone companies allow you to cross out sections on the "contract" that you don't like? I have not heard of the consumer being able to negotiate.

Second, contracts obligate both parties to live up to their end of the deal. Well the cell phone companies have a standard clause that they can change the terms of agreement anytime they wish. No such luck for the consumer, the consumer is locked in. Here is the what Verizon has: "Can Verizon Wireless Change This Agreement or My Service?" In that section, Verizon states: "We may change prices or any other term of your Service or this agreement at any time, but we'll send you written notice first. If you use your Service after the change takes effect, that means you're accepting the change. But if a change to your Plan or this agreement has a material adverse effect on you, you can cancel the line of Service that has been affected within 60 days of receiving the notice with no early termination fee." (Emphasis added).

Adam concludes with: "But, if you default on that loan by breaking your contract, you’ll be hit with a penalty — an early termination fee — since it would leave the carrier without a way to recoup the cost of that shiny new mobile mini-computer that they handed you on the cheap when you just absolutely had to have the hot new toy in town." But what recourse does the consumer have if the cell phone company cuts him or her off? The cell phone becomes a paper weight. I guess Adam believes that consumers are not hurt financially should their cell phone service be unceremoniously terminated.

While I don't consider cell phone contracts to be valid, there is an aspect of contract law related to adhesion contracts. Cell phone contracts could be considered adhesion contracts. Adhesion contracts, to me, are not valid since they cannot be negotiated. But then there is debate within the legal community about whether adhesion contracts are valid. I will leave that up to you to review. As for me, I am NOT a lawyer and my comments simply reflect my personal opinion.


Patrick Mullen said...

IMHO Cell phone marketers are a collection of deceptive leeches.

One needs to use extreme caution before signing any cellular service contract

generic cialis 20mg said...

In principle, a good happen, support the views of the author