A consumer contract is a contract made between a merchant seller and a consumer. According to the Uniform Commercial Code which governs contracts, a “merchant” is any person who deals in goods of the kind of their occupation, or has knowledge or skill related to the goods involved in the transaction. A “consumer” is any person who purchases goods or services for personal use rather than for other uses such as production or manufacturing.
In most consumer contracts, the merchant supplies the consumer with goods, which are used personally by the purchaser. The consumer is seen as the last party to whom the goods are passed in ownership. Merchant-consumer contracts typically involve finished products, though they may often involve the sale of raw materials and services.
It is generally assumed that merchants have more knowledge of economics and commerce than the average citizen, and may be more “business savvy” than consumers. Thus, consumer protection laws exist in order to protect consumers. Many of these consumer protections apply to consumer contracts, in order to protect the consumer from unfair or one-sided contracts.
Some unique features and protections of consumer contracts involve:
- Form of the Contract: “Form” refers to the general structure and appearance of the contract. Consumer protection laws often regulate the contract form so that it is presentable to the reader. Certain portions or the entire document must be printed in a certain font size (i.e., no miniature font sizes). Copies must be provided to the buyer. Also, laws may require payments to be itemized and prices allocated to specific items such as the product, interest, insurance, etc.
- Contract Terms: Parties are generally free to agree upon any contract terms as they deem appropriate. However, consumer laws often prohibit terms or provisions that are considered to be unfair to the consumer, or may be potentially abused by the seller.
- Price Gouging: Price gouging occurs where a merchant takes advantage of market conditions in order to charge exorbitant prices. For example, after a natural disaster, merchants may raise the prices of canned goods or bottled water. Consumer contract laws prohibit contract prices which represent an “unconscionably excessive” price.
- Acceleration Clauses: An acceleration clause in contract requires the purchaser to pay the entire remaining balance of installment payments in the event of a default. For example, if a consumer is making installment payments on a car and fails to make a monthly payment, an acceleration clause would require the buyer to pay for the car in full after the default. Such clauses can financially devastate a consumer. Therefore, many statutes prohibit or restrict the use of acceleration clauses in a consumer contract
Consumer contracts are more strictly regulated than normal contracts between two merchants, who are usually more familiar with contracts than consumers. The purpose of consumer contracts is to prevent abuses and make the contracts more understandable for the reader.
If a merchant violates consumer protection laws in the contract, it could lead to several types of legal consequences. Depending on the type of violation or breach, the contract could be declared “void”, which means that it is immediately invalid without any further analysis required. Other types of violations could render a contract “voidable”, which means it may be invalidated after the court performs a thorough analysis of the contract and the circumstances leading to contract formation.
Void or voidable contracts may result in the contract being cancelled and rewritten in whole or in part. Additionally, the merchant may be required to reimburse the consumer for any losses or injuries stemming from the contract violation. Consumers can also be held liable for providing merchants with fraudulent information in the contract. Criminal consequences may also result if either party acted with criminal or illegal intent.
One problem with consumer contracts is that the consumer party may not even be aware that their rights have been violated, since contracts can often be complex. By the time they discover a violation, it may be too late to file a legal claim. Thus, it is recommended that you contact a lawyer prior to signing any consumer contract, so that they can review the contract for you. An experienced contract attorney will be familiar with the various consumer contract protections in your jurisdiction, and can advise you on the contents of the contract.