Reforming the Law of Adhesion Contracts: A Judicial Response to the Subprime Mortgage Crisis

Shelley Smith, Marquette University

Abstract

This Article examines the role of standardized contracts of adhesion, in the form of mortgages, installment sale agreements and other contracts for debt that cannot be repaid, in causing the subprime mortgage crisis and the Great Depression. Evidence from the Great Depression, the Savings and Loan Crisis of the 1980s, and the subprime mortgage crisis is canvassed to demonstrate the futility of the government’s continued reliance on regulation alone to prevent the recurrence of these disasters, and to show that a reformulation of the law of adhesion contracts is needed. The Article contends that the courts’ continued adherence to the theory of presumed assent in all but the most egregious cases is no longer viable given the relationship between adhesion contracts incomprehensible to the average layperson and the major economic disasters that follow in their wake. The Article discusses why the proscriptions offered by scholars are inadequate to resolve this larger economic issue, and proposes a new method for salvaging assent in adhesion contracts while remaining true to the doctrine that assent is based on an objective manifestation of assent through conduct rather than on the subjective intent of the parties.