How would libertarianism deal with deceptive contracts?

Question

Also, what about if you buy a software, and some terms in the software TOS says that you agree to be sex slave.

A more concrete samples

Unit link insurances. In most regions, people are selling unit link insurance. The unit link insurance are often sold deceptively.

For example, say you buy an insurance that normally worth $100. The insurance agent will combine that with investment. Say, the investment is $10000. The insurance agent will say that all the money is invested, and you got a small insurance on top of that.

The fee, however, is $10k (yap 100 times the normal cost of insurance).

The customer doesn't know that there is a $10k fee. It's usually written in obscure ways. For example, the contract can say that there is a fee of 100% of basic premium.

A consumer must combine that statement with other statement, such as what is basic premium, and how much is it, to know that there is a $10k fee. Not suspecting that a $100 worth of insurance can have a $10k fee, most customers just miss that part.

Another real world samples:

1. Ethereum DAO The contract is the code. There is a bug in a code that makes some people lost money. The way ethereum do it is with a fork. But we can't change our currency every time this happened.

2. Hacking In case of hacking, the thief just got the money. So libertarians seem to follow the easiest path. Notice libertarians aren't worse off than most countries.

How would libertarians view that sort of contract?

In one hand the contract is consensual. It usually contain terms like customers already read, understand, and agree with the contract.

Basically there are several things libertarian "countries" may do

1. Don't bother enforcing the contract. After all, the contract if the contract is grossly deceptive it's not "true consent" anyway.
2. Let the market handles the situation. Companies with deceptive contract will have bad brand.
3. Having protection customer agencies suing the companies (this is probably a very unlibertarian solution, but this is how most countries are doing it)

For a sample.

I wonder what a libertarian court, justice, or government would do in

http://www.asiaone.com/singapore/sim-lim-scams-student-reduced-tears-after-being-charged-1k-iphone-warranty

Will it be the same or differ from what Singaporean governments' do?

Answer 1

Perhaps the single, most fundamental principle within libertarian thought is voluntarism. Almost all other libertarian ideals (freedom of contracts, autonomous judgement, informed consent, individual freedom, labor theory of property, etc.) are philosophically derived from this principle. The best society is the one in which all people are maximally free to make their own decisions regarding their own lives. Even though such freedom will most certainly cause inequality of outcome, libertarians believe that it is morally wrong for others (i.e. the government) to interfere with or deprive people of that freedom.

And that's where we get into the non-aggression principle. People think of "aggression" as an act of violence, but it really applies to any act which is deliberately designed to cause someone else involuntary and tangible harm. Fraud and deceit definitely fit that definition as do other nonviolent crimes like theft, vandalism, and counterfeiting for example.

When it comes to contracts, libertarians believe that no one has the right to interfere with the subject matter of what kinds of contracts people should be able to enter into (even your extreme example of selling yourself into slavery). However, in order to be moral, the manner in which a contract is agreed to is of paramount importance. Even among libertarians, certain contracts should be held unenforceable if they are entered into in bad faith. Such contracts would not be considered voluntary under the following circumstances:

• Lack of Capacity:
  People cannot voluntarily consent to terms which they are incapable of understanding. It's very difficult to assess someone else's competence and there is disagreement over the extent to how much duty each person has to verify the sound judgement of another, but it's easy to agree that certain people lack this judgement. Young children, incapacitated people, and people suffering from obvious dementia are great examples.
• Duress:
  A contract is invalid when one person was threatened into agreeing to it, either explicitly or implicitly (as is usually the case). One could argue that blackmail would fall into this category, although some libertarians think that preventing disclosure of negative information is a perfectly acceptable contract. But no reasonable person thinks it's OK to coerce someone into signing a contract.
• Undue Influence: Artificially creating the circumstances which a contract is designed to mitigate is fraudulent. A good example would be deliberately infecting someone's computer with a virus, and then charging them to remove it. That's a form of racketeering.
• Misrepresentation:
  Lying about certain facts or characterizing a situation in such a way as to force someone to enter into a contract they wouldn't have made if they'd known the truth. This is more about the act of making deliberately false statements about important facts a person rationally needs to make an informed decision rather than the other person just blindly believing something untrue when they had the realistic means to know otherwise.
• Nondisclosure:
  This is just misrepresentation by omission; deliberately preventing a party from finding out important information that they rationally need to make an informed decision.
• Obfuscation:
  This is the act of using the language of a contract to hide terms that would be unfavorable to the other person. This is similar to lack of capacity, but in this case, even a reasonable person wouldn't be able to understand exactly what they are agreeing to. This is most often accompanied by high-pressure tactics designed to fatigue a person into an ambiguous agreement, either by creating a false sense of urgency, or otherwise preventing a person from properly deliberating with themselves.

This isn't an exhaustive list, but all of these tactics rob a person of their ability to make voluntary decisions, and are particularly insidious because they have the appearance of voluntarism, but in reality have manipulated another person into a course of action that they would not have consented to without the deception. Voluntarism is based on freedom of choice, so it's not voluntary if you've deliberately acted to take those choices away.

So it should be clear that libertarianism is not an "every man for himself" or "let the buyer beware" philosophy. But how should we deal with fraud when it occurs? How those rules should be enforced, who is empowered to enforce them, and what corrective actions should people be allowed to take is a matter of significant debate among libertarian thinkers and I'm afraid there isn't much consensus on those questions.

Answer 2

Remember, Liberatarianism is not "No Government" it's "Less Government." What is or is not something that requires the government is often debated internally but the common crux is that the role of government is first and foremost the protection of the rights of the individual. It's reasonable to a Libertarian that the government SHOULD act in a situation where one person is violating another person's rights. So a government would be within Libertarian guide lines to render the contract unenforceable if there is bad faith on one of the participant's parts.

To sum up in an analogy, The government does not have the authority to tell me I cannot sign a valid contract with the devil to sell my soul for an agreed upon service... but if the Devil delivers on a exact word or other linguistic nueance, than the Government can interfere in our agreement so that both parties reach an acceptable deal (either reimbursement or the correct circumstances of the arrangement).

Answer 3

The most applicable point of view is the idea of Freedom of Contract, which is the belief that individuals should be allowed to enter into any form of contract free of government intervention. This can be contrasted with such policies as minimum wage, since free individuals should be allowed to decide for themselves whether entering into a contract in the first place is in their best interests.

Some take this notion pretty far, for example Robert Nozick wrote in Anarchy, State, and Utopia about a thought experiment he termed Demoktesis in which people started incorporating themselves and selling shares off to people until everyone owned a single share of themselves and then also owned a single share of everyone else. In fact, Nozick went further, and said this about slavery:

The comparable question about an individual is whether a free system will allow him to sell himself into slavery. I believe that it would.

The Libertarian Party included the following statement on their 2016 Platform:

Since governments, when instituted, must not violate individual rights, we oppose all interference by government in the areas of voluntary and contractual relations among individuals. People should not be forced to sacrifice their lives and property for the benefit of others. They should be left free by government to deal with one another as free traders; and the resultant economic system, the only one compatible with the protection of individual rights, is the free market.

Taking these points of views into account, I don't believe most Libertarians would think the government should protect people from themselves.

A Libertarian would instead look to the free market to set the guidelines of what would or would not be acceptable under contract law. Credit ratings agencies and technology standards bodies are examples of the free market filling a need for neutral arbiters of fact, and something akin to them would likely be more palatable than the government mandating specific standards.

Answer 4

Basically there are several things libertarian "countries" may do

1. Don't bother enforcing the contract. After all, the contract if the contract is grossly deceptive it's not "true consent" anyway.

I think this is correct. Libertarianism doesn't say "We cannot /should not make any laws that stop you from cheating or defrauding anyone" (that would be Anarchy).

It does say the government has no right to go around blocking or changing mutual agreements that are clearly spelled out between two parties.

For example, if you agree to do 5 hours of work for me in exchange for 20 dollars, and we both know that's the agreement, Libertarianism has no objection. If I then withhold and pay you nothing, Libertarianism does have an objection. Also, if I pay you in 20 monopoly dollars and then claim our agreement just said dollars and didn't specify the type, Libertarianism still allows for an objection.

Answer 5

tl;dr- Libertarians believe in individuals' right to enter into agreements, not technical compliance with written documents. Ideally, written documents would serve as evidence of actual agreements, having no intrinsic legal effect beyond that.

---

In addition to @WesSayeed's excellent answer...

Libertarians fundamentally believe in agreements between consenting parties. There's no fundamental reason that such agreements need to be written up; in principle, it's sufficient that all parties to a contract comply with it.

In reality, contractual parties may dispute others' compliance with a contract. In order to resolve disputes, it's extremely helpful to have evidence of the contractual arrangement. Written documents are meant to serve as such evidence.

Regarding the example in the question

Also, what about if you buy a software, and some terms in the software TOS says that you agree to be sex slave.

In this hypothetical scenario, is the sex-slave clause buried in a part of the section that a reasonable mediator would find likely to have been hidden and thus not representative of what the software customer actually agreed to? If so, then a Libertarian would tend to argue that it should be invalid; that the piece of paper itself isn't sufficient evidence of an actual agreement about sex slavery.

Practically speaking, it's often difficult to establish the absolute truth in conflict resolution. When there's disagreement about the truth, things become less ideal and practical concerns come in. It's then a question of attempting to ensure compliance to the all parties' differing perceptions of the agreement as-best-as-possible, potentially discounting the perceptions of parties who were negligent or otherwise not acting in good faith.

So in an ideal Libertarian society, those entering into agreements would want to ensure that they have sufficient evidence of actual agreement rather than just a signed document that contains a point somewhere within it. Presumably people couldn't just get out of contracts by claiming to have not actually inspected them, as that'd be negligence (poor faith) on their part, though presumably people wouldn't tend to be fully obligated to meet obligations that a judge would find to be insufficiently evidenced assuming due diligence, where "due diligence" would tend to vary with the context – for example, the due diligence to carefully inspect a contract for installing common software would presumably be fairly low as software customers would tend to have a reasonable expectation for such contracts to not contain a clause about being a sex slave.

Real-life contractual law seems to contain elements of this

It's my understanding that contract law tends to work somewhat like this in many countries, e.g. the US.

This appears to be a huge topic; as a starting point:

In English law, a vitiating factor in the common law of contract is a factor that can affect the validity of a contract. The concept has been adopted in other common law jurisdictions, including the USA.

–"Vitiating factors in the law of contract", Wikipedia

My impression is that (not legal advice):

1. Courts can hold contractual clauses invalid when they seem to be in bad faith.

   "There are controls on what we call unfair terms," says Prof Hoernle.

   She says: "Clearly the courts now take into account that if there are unfair clauses hidden away in terms of service, it's more likely to be [deemed] unfair.

   –"Is small print in online contracts enforceable?", BBC News (2013-06-06)

2. Some legal documents require signing/initialing individual pages/clauses to strengthen the evidence of actual agreement to certain terms.

3. When a contractual agreement seems particularly unusual, it'd be advisable to obtain stronger evidence of the agreement than just having parties sign at the end.

   "The user has to be made aware of the terms of service and if there are any unusual or surprising terms of service, they have to be pointed out specifically to the consumer."

   –"Is small print in online contracts enforceable?", BBC News (2013-06-06)

Note: On forced compliance in the presence of negligence

Say that someone blindly signs a contract without reading it. Then, should they be forced to comply with it?

Under typical law, yes. And under Libertarian logic, yes. But the reasons are very different, so wanted to clarify the distinction here.

In the Libertarian logic described above, if someone blindly signs a contract and can prove that they signed it without actual agreement, then that contract doesn't serve as evidence of an actual agreement and wouldn't be enforceable.

However, by having signed the contract, they'd have tricked the other contractual parties into believing that the blind-signer agreed. So while it'd be unfair to say that the blind-signer actually agreed, it's entirely accurate to say that they've defrauded the other contractual parties. Then as restitution for their fraudulent behavior, it'd be reasonable to require them to meet the apparent contractual terms.

The point here's just that the Libertarian logic works and reaches a very similar conclusion, though the path to that conclusion's different.

Answer 6

The basic social contract that enables libertarianism to exist is a mutual pledge to defend rights equitably. When peers agree that a contract was intentionally deceptive, they can cause the perpetrator to be judged and if convicted, a penalty imposed that fits the gravity of the crime, including possible reparations to the deceived.

Answer 7

As some have said here, libertarian tends to mean for some less government, not completely getting rid of government. Usually, you can have a small government that is headed by a volunteer militia, group of individuals responsible for performing a citizen's arrest, or some other authority without too much official power over the people other than having more training than the average civilian and more recognition from the community. By definition, this concept could be called a nightwatchman state: a concept where any of the governments previously described can be considered a 'state' as long as it meets the requirements set by John Locke & the concept has been accepted by scholars such as Charles Townshend. It is also considered the minimum requirement for a 'state' according to Oxford in their peer-reviewed book The Oxford History of Modern War & and other peer-reviewed political works like writings from the American think-tank Fund for Peace.

Answer 8

I wonder why no one mention exposing the sellers and ruining their reputation? That seems to be well within market mechanism and doesn't require a libertarian government to do anything.

That seems to be what finally end the practice in case of Sim Lim.

What other government (not libertarian governments do) is usually reasonable enough.

There is a case of sim lim

In Sim Lim scam, a buyer buys an iphone. The seller then offers insurance along with the iPhone. The buyer, not knowing the actual cost of the insurance, sign a contract. The actual cost of the insurance is $1k. Much higher price than the iPhone.

http://www.asiaone.com/singapore/sim-lim-scams-student-reduced-tears-after-being-charged-1k-iphone-warranty

There isn't much Singaporean government can do. After all, the buyers sign the contract. However

Singaporean government do a bunch of things that I think is good enough.

1. Singaporean government doesn't enforce the contract. The scammers enforce the contract by keeping the customers' iPhone.
2. Singaporean governments consider the contract invalid and force the sellers to return the customers' money.

Notice that the Singaporean governments do not jail the sellers. That seems like going too far. In some cases, it does though. http://www.straitstimes.com/singapore/courts-crime/sim-lim-square-salesman-jailed-6-months-for-cheating-customers-at-two-mobile but only after the media outcry.

Also it's doing too little. Obviously most customers won't bother going to court and just let go the lost of $1k. So the scam is still profitable.

What really put a blow on the scam is well, the media, blowing the issue out.

http://www.asiaone.com/singapore/sim-lim-scams-student-reduced-tears-after-being-charged-1k-iphone-warranty

I think that kills the scam.

However, there are still many such scams in the world. I do not think there is much libertarian or otherwise solutions on this.

What I do notice is

1. Even non libertarian governments do not enforce such contracts. This sort of scam works only if the sellers/scammers hold the buyers' good in his hand. So people can be careful before sending money to potential scammers.
2. Under libertarian regimes, people can freely talk about such scam in media.
3. Companies that do this are not usually big. I've heard news about people eating fried rice in Indonesia and being charged $200 for it. The price is not clearly listed. Again, the media advice people to do so.

Is this a perfect solution?

No. I have some cases where a big companies earning billions of dollars of profit manage to scam people and get away with it.

But libertarians solutions, where people can freely expose scammers, seem to be a good enough defense against such cases.