Contract Law Article 137 Harv. L. Rev. 1061

Contract-Wrapped Property

Danielle D’Onfro

Volume 137
Issue 4
February 2024
See full issue

Abstract

For nearly two centuries, the law has allowed servitudes that “run with” real property while with few exceptions refusing to permit servitudes attached to personal property. That is, owners of land can establish new, specific requirements for the property that bind all future owners — but owners of chattels cannot. In recent decades, however, firms have increasingly begun relying on contract provisions that purport to bind future owners of chattels. Courts’ interpretations of copyright law enabled these developments in the context of software licensing, but these licenses have started to migrate to chattels not encumbered by software. Courts encountering these provisions have mostly missed their significance, focusing instead on questions of contract doctrine, such as whether opening shrinkwrap constitutes assent to be bound. Property concepts never enter their analysis. The result of this oversight is that courts have de facto recognized equitable servitudes on chattels — a category that the common law has long rejected except in extraordinary circumstances. Yet because courts are often unfamiliar with property law principles, and because lawyers have failed to make property-based arguments, individual contracts cases are remodeling the architecture of property rights without anyone realizing it. This Article identifies the unexpected emergence of servitudes on chattels via contract law. It explores the consequences of that development and argues that we should see it as deeply troubling. By unwittingly establishing equitable servitudes on chattels, this change in law threatens to undo longstanding precedent, disrupt settled expectations, and effectively recognize a new form of property. More generally, elevating contract over other private law doctrines disrupts the private law’s equilibrium in which a complementary suite of doctrines developed to promote economic liberty while curtailing opportunistic impulses. While the pathologies that have flourished internally in modern contract doctrine have been well studied by scholars, the way in which contract law is threatening to consume property and other areas of private law has received less attention. Using servitudes on personal property as a window into the larger problem of contract-dominated private law, this Article explores the private law’s role in shaping environmental conservation, autonomy, innovation, and the legitimacy of the law itself. Those values are all in jeopardy if contract law is allowed to encroach on property and to erode the very concept of ownership.

Introduction

Tamko roofing shingles are drab rectangles of laminated asphalt and fiberglass.¹ They don’t contain any chips, sensors, or software. Roofing suppliers sell these shingles the old-fashioned, low-tech way — no apps or subscriptions required. And yet, these shingles are changing the meaning of ownership. Like many manufacturers, Tamko shrinkwraps a contract around the packages of shingles that it sells to roofers.² Tamko’s contract is unremarkable except in terms of whom it purports to bind. This contract, styled as a “Limited Warranty,” purports to bind not merely the purchaser or installer of the shingles, but instead “the owner of the building at the time the Shingles are installed on that building” and “the first person to occupy the residence after its construction” if the residence is purchased from a builder.³ The agreement specifies that a homeowner may be bound “even though the Shingles were already installed” at the time of purchase.⁴ This agreement even attempts to reach further down the chain of title to secondary purchasers of the home if they purchase within the first five years of the warranty term.⁵

Because it attempts to bind downstream owners of the shingles, notwithstanding the lack of privity between Tamko and that downstream purchaser, this agreement attempts to create a de facto equitable servitude. The problem, though, is that under longstanding property doctrines, equitable servitudes on personal property are unenforceable.⁶ Equitable servitudes on real property may be enforceable, but only when they meet particular requirements, notably recording in official property records.⁷ In theory, these are mandatory property doctrines that should defeat Tamko’s expansive contractual claims. And yet, Tamko keeps winning cases in which it attempts to enforce its alleged contract.⁸

What Tamko is trying to accomplish may seem aggressive, but there is every reason to think that it is merely the vanguard of a coming explosion of would-be servitudes on personal property. For nearly a century, scholars have wondered why courts enforced equitable servitudes on real property but not personal property.⁹ This question took on new urgency — and with that, new scholarly interest — starting in the early aughts with the proliferation of software licenses.¹⁰ These licenses appeared to attach to chattels and run with them just as servitudes might run with real property.¹¹ Servitudes enabled by software licenses initially seemed sui generis: while they were enabled by federal intellectual property law, state property law continued to refuse to recognize servitudes on chattels.¹² That refusal is now eroding.

This Article shows that courts across the country are now effectively recognizing equitable servitudes on private property largely under the guise of contract law — even if only California courts acknowledge, or even recognize, that that is what they are doing. Because courts consider these cases from the exclusive perspective of contract law, they ignore other private law doctrines that ought to provide guardrails to contracts’ reach. After cataloging the unexpected emergence of equitable servitudes on chattels, this Article goes on to argue that we should find this development deeply troubling. Our legal system has long rejected almost all equitable servitudes on personal property,¹³ and for good reason. By unwittingly recognizing a new form of property, courts are upsetting deeply held intuitions about the meaning of ownership.¹⁴ This, in turn, tips the balance of the law promoting consumption over creation and more meaningful constructions of the self.

There are many reasons to be concerned about the rise of equitable servitudes on personal property. Equitable servitudes on chattels threaten the viability of ownership in fee simple,¹⁵ especially given contract doctrine’s permissive approach to unilateral modification clauses.¹⁶ Moreover, in failing to engage with relevant property doctrine, attorneys and courts allow contract to crowd out noncontract private law doctrine and policy. Contracts-focused litigation fails to engage with the concerns that led earlier courts to reject equitable servitudes on chattels: notably, information costs, competition, and waste. And if equitable servitudes on personal property are permitted, we should expect them quickly to proliferate. For firms, the cost of including these servitudes on their goods is so low that they will likely become as common as contracts of adhesion. Were that to happen, people today could lock up future generations’ personal property just as they have done for real property.¹⁷ Doing so would not only impose the preferences of today on tomorrow, but also could recreate feudal patterns of ownership, as control over use of goods concentrates in the hands of the few.¹⁸

Understanding the way in which contract law is threatening to overtake settled property doctrine has broader lessons for private law. Elevating contract over all other private law doctrines disrupts the broader equilibrium of the private law, in which a complementary suite of doctrines developed to promote liberty while curtailing opportunism.¹⁹ While the pathologies that have flourished internally in modern contract doctrine have been well covered,²⁰ with a few exceptions,²¹ the outsized role of contract itself has received less attention. This outsized role arguably begins in law schools, where students study the virtues of private ordering but may never encounter the many ancient substantive constraints on private ordering, or if they do encounter them, then only as curiosities exemplifying the bad old days of doctrinal formalism. In many ways, the Third Restatement of Property encouraged a shift away from viewing property as a source of mandatory constraints on contract by embracing reasonableness standards for enforcing customization devices like servitudes.²² Drafts of the Fourth Restatement of Property, particularly its explicit embrace of the numerus clausus principle,²³ are reasserting property as a bulwark against contract. Still, the thrust of modern private law is toward expanding the reach of contract doctrine, often at the expense of other longstanding doctrines.²⁴ Equitable servitudes on chattels are one window into this growing imbalance. Particularly, they are a window that reveals what is lost when freedom to contract subordinates other private law policy concerns. The future of this equilibrium in the private law has significant implications for the future of autonomy, dignity, creativity, and innovation.

Courts should reject equitable servitudes on personal property. They should strictly enforce property doctrine forbidding those servitudes and refuse to allow firms to use permissive contract doctrines to recreate them. Even if courts are unwilling to reject these servitudes entirely, a second-best solution would be to subject them to rules similar to those that apply to servitudes on real property. These rules are substantively more restrictive than the rules that normally apply to contracts.²⁵

This Article proceeds in four Parts. Part I lays the doctrinal foundation, beginning with equitable servitudes on real property and early questions about whether — and if so, how — equitable servitudes might work on chattels. Next, it traces how intellectual property law created a second pathway for de facto equitable servitudes on chattels, thereby arguably changing how courts view the property/contract interface.

Part II explores how an imperial contract doctrine is distorting the structure of the private law. This Part begins by arguing that property doctrine, with its substantive mandatory rules, often acts as a system of checks and balances on contract’s excesses, particularly with respect to consumers. It then explains how three developments in contract practice — the decline of formation formalities, unilateral modification rights, and arbitration — have tended to recast a disproportionate share of private law disputes as contracts disputes. Four examples of modern equitable servitudes on chattels follow, including a case study of the Tamko shingles litigation. This Part closes with descriptive analysis of how lawyers framed a recent series of cases involving terms of service printed on or wrapped around roofing shingles. Rather than contest the propriety of what appears to be a servitude on a chattel, the plaintiffs engaged with the terms of service in contractual terms.²⁶

Having set up the equitable servitudes doctrine and its implications on the private law system, Part III turns to the doctrine’s implications for society more broadly. This Part builds on earlier analysis of the economic implications of equitable servitudes on chattels, focusing on the consequences of equitable servitudes for the environment, autonomy, the self, and the legitimacy of the legal system as a whole. This Part makes the case that enforcing equitable servitudes on chattels would reduce welfare on many fronts.

With these implications in mind, Part IV loosely sketches out a doctrinal framework for equitable servitudes on chattels if they must exist. Specifically, courts should import the rigorous analyses that they perform on equitable servitudes on real property before enforcing any equitable servitude on chattel. In addition, to promote the efficient reuse of goods and materials, some kinds of entities must be able to sell goods free and clear of any servitudes. This framework, however, is a second-best approach. The first-best option would be for courts to recommit to not enforcing equitable servitudes on chattels, even when they are styled as contracts.

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* Associate Professor of Law, Washington University in St. Louis. For helpful conversations and comments at various stages, I’m grateful to Jennifer Allison, Scott Baker, Andrea Boyack, Molly Brady, Yun-chien Chang, Kevin Collins, Travis Crum, Kevin Douglas, Jared Ellias, Dan Epps, Jill Fraley, Jens Frankenreiter, John Goldberg, Dan Klerman, Mark Lemley, Jed Lewinsohn, Henry Smith, Kathryn Spier, Carla Spivack, and Rory Van Loo, as well as the participants of the Harvard Private Law Workshop, American Law and Economics Association 2023 Annual Meeting, European Association of Law and Economics 2023 Annual Meeting, AALS New Voices in Property, University of Florida Faculty Workshop, Michigan State Faculty Workshop, WashU Law Faculty Workshop, and Cornell Faculty Workshop. Special thanks to Jacob Seeley for outstanding research assistance.

Footnotes

^ See Shingle Colors, Tamko, https://www.tamko.com/all-shingle-colors [https://perma.cc/AFM5-84VS].
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^ For a few models Tamko claims to have molded notice of the terms onto the shingles themselves. Krusch v. Tamko Bldg. Prods., Inc., 34 F. Supp. 3d 584, 589 (M.D.N.C. 2014).
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^ Tamko Fiberglass/Asphalt Shingle Limited Warranty, Tamko, https://www.tamko.com/docs/default-source/limited-warranties/TAMKO-fiberglass-asphalt-shingle-limited-warranty-(effective-march-1-2021).pdf [https://perma.cc/FX7G-JJYT].
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^ Id. If a homeowner does not agree to the terms, the agreement directs them to “RETURN ALL UNOPENED MARKETABLE PRODUCTS TO THE ORIGINAL PLACE OF PURCHASE FOR A REFUND.” Id. Never mind, of course, that returning the shingles would mean peeling the roof off a house at the homeowner’s expense.
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^ Id.
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^ Restatement (Fourth) of Prop. § 4.1 cmt. g (Am. L. Inst., Tentative Draft No. 3, 2022) (“Traditionally, equitable servitudes . . . and nonpossessory property rights apply only to land, not to personal property.”). See generally Zechariah Chafee, Jr., Equitable Servitudes on Chattels, 41 Harv. L. Rev. 945 (1928) (explaining courts’ refusals to allow equitable servitudes on chattels).
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^ See Restatement (Third) of Prop.: Servitudes § 1.4 (Am. L. Inst. 2000).
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^ See infra section II.C.1, pp. 1095–103.
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^ See Chafee, supra note 6, at 945; Zechariah Chafee, Jr., Comment, The Music Goes Round and Round: Equitable Servitudes and Chattels, 69 Harv. L. Rev. 1250, 1254–55 (1956); Glen O. Robinson, Personal Property Servitudes, 71 U. Chi. L. Rev. 1449, 1450–51 (2004).
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^ See Molly Shaffer Van Houweling, The New Servitudes, 96 Geo. L.J. 885, 889 (2008); Christina Mulligan, Personal Property Servitudes on the Internet of Things, 50 Ga. L. Rev. 1121, 1122–23 (2016); Christina Mulligan, Licenses and the Property/Contract Interface, 93 Ind. L.J. 1073, 1074–75 (2018) [hereinafter Mulligan, Licenses].
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^ Van Houweling, supra note 10, at 889.
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^ See Molly Shaffer Van Houweling, Touching and Concerning Copyright: Real Property Reasoning in MDY Industries, Inc. v. Blizzard Entertainment, Inc., 51 Santa Clara L. Rev. 1063, 1068, 1075–76 (2011).
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^ See sources cited supra note 9.
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^ See generally Michael Heller & James Salzman, Mine!: How the Hidden Rules of Ownership Control Our Lives (2021) (exploring the intuitive contours of private property).
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^ See infra section III.C, pp. 1118–24.
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^ See infra section II.B.2, pp. 1088–92.
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^ See, e.g., Julia D. Mahoney, Perpetual Restrictions on Land and the Problem of the Future, 88 Va. L. Rev. 739, 773–74 (2002).
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^ See Gregory S. Alexander, The Dead Hand and the Law of Trusts in the Nineteenth Century, 37 Stan. L. Rev. 1189, 1191 (1985) (explaining the abolition of restraints on alienation “as the major defining characteristic of a liberal commercial society as opposed to a feudal one”); Joseph William Singer, The Reliance Interest in Property Revisited, 7 Unbound: Harv. J. Legal Left 79, 82 (2011) (“The defining characteristic of American property law is the abolition of feudalism. That means that we regulate property relationships to ensure that each person has freedom, dignity, and access to the means of a comfortable life.”); see also Joshua A.T. Fairfield, Owned: Property, Privacy, and the New Digital Serfdom 19–20 (2017) (explaining how “[l]icensing is the new infeudation,” id. at 20); Van Houweling, supra note 10, at 901–02 (noting that servitudes impose “dead-hand control” considered by some scholars to be characteristic of “feudal serfdom,” id. at 901).
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^ This Article primarily focuses on the relationship between firms and consumers with respect to consumer goods. However, much of this analysis applies in business-to-business relationships as well. It is especially applicable to small businesses who have little comparative bargaining power against some of their essential suppliers. Moreover, the line between individuals and small businesses is blurry — especially given the rise of the so-called gig economy. Much of this analysis also applies to individuals, but individuals rarely have the desire or wherewithal to attempt to encumber their property with equitable servitudes, except in the case of heirlooms. For example, imagine a donor stipulating that the diamond in a family engagement ring may never be reset or used to commemorate a same-sex relationship.
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^ See, e.g., Friedrich Kessler, Contracts of Adhesion — Some Thoughts About Freedom of Contract, 43 Colum. L. Rev. 629, 640 (1943) (“[T]he law, by protecting the unequal distribution of property, does nothing to prevent freedom of contract from becoming a one-sided privilege.”); Todd D. Rakoff, Contracts of Adhesion: An Essay in Reconstruction, 96 Harv. L. Rev. 1173, 1220–43 (1983) (explaining how contracts of adhesion confer advantages on the drafting parties in light of imperfect competition); Margaret Jane Radin, Boilerplate: The Fine Print, Vanishing Rights, and the Rule of Law 10–17 (2012) (explaining how contracts of adhesion can remove informed consent and basic rights, including jury trials in contract disputes).
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^ See Ryan Martins, Shannon Price & John Fabian Witt, Contract’s Revenge: The Waiver Society and the Death of Tort, 41 Cardozo L. Rev. 1265, 1299 (2020); J. Maria Glover, Disappearing Claims and the Erosion of Substantive Law, 124 Yale L.J. 3052, 3054 (2015); Radin, supra note 20, at 10–17; see also Eyal Zamir featuring Ian Ayres, A Theory of Mandatory Rules: Typology, Policy, and Design, 99 Tex. L. Rev. 283, 284 (2020).
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^ See Restatement (Third) of Prop.: Servitudes § 3.4 (Am. L. Inst. 2000).
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^ Restatement (Fourth) of Prop. § 4 (Am. L. Inst., Tentative Draft No. 3, 2022).
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^ See Martins, Price & Witt, supra note 21, at 1299.
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^ See infra pp. 1126–27.
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^ E.g., Dye v. Tamko Bldg. Prods., Inc., 908 F.3d 675, 679 (11th Cir. 2018); Am. Fam. Mut. Ins. Co. v. Tamko Bldg. Prods., Inc., 178 F. Supp. 3d 1121, 1124–25 (D. Colo. 2016); Hoekman v. Tamko Bldg. Prods., Inc., No. 14-cv-01581, 2015 WL 9591471, at *3 (E.D. Cal. Aug. 24, 2015); Hobbs v. Tamko Bldg. Prods., Inc., 479 S.W.3d 147, 150 (Mo. Ct. App. 2015); Krusch v. TAMKO Bldg. Prods., Inc., 34 F. Supp. 3d 584, 587–88 (M.D.N.C. 2014).
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