Just Because They Call It a Contract Doesn’t Mean…

When United Airlines famously manhandled its customer recently, denying a seat to the holder of a paid ticket, I posted a piece disagreeing with those who defended the airline’s right to claw back the seat it had sold:

The “involuntary denied boarding” clause is in the contract, they say, and it rules.  It is in there fair and square, they say, and the passenger should have known it.

Nobody books a flight and pays for it and is then told by the airline that it will honor the ticket only when it deems it convenient. But that is the practical effect of the “contract of carriage” fine print.

I criticized this practice as casuistry, “the clever use of lawyerly reasoning or the exceedingly fine print of legal language and contractual minutiae to subvert the plain meaning of the purchase of a seat on an airline, a new home, or anything else.”

”Nobody here is arguing against a close reading of terms and contracts in complex business deals and agreements. But must we go through the principal activities of our daily lives — shopping, traveling, and all the rest – needing to have a lawyer on speed dial or Black’s Law Dictionary in our hip pockets?  Have you read the fine print that goes with your brokerage account?  Have your assets — which you plainly think are yours — actually been pledged, repledged, hypothecated, or re-hypothecated by the brokerage house? When you clicked “Yes” in the box to download a piece of software, were you really agreeing to be Bill Gate’s towel boy?” (The Small Print vs. The Big Issue, LRC Blog, 4/25

Among those who reacted to my post was blogger Bionic Mosquito, who asked, If Not Contract, What?”  He wrote: “Now to the big question: if not the contract, what should govern? A contract represents an agreement between two individuals; it gets no more ‘libertarian’ than this.”

Because it is a question that deserves an answer, I am sharing the response I sent him a week or so ago:

Dear Bionic:

Thank you for engaging my objection to casuistry and those who have defended United Airlines’ right — not its judgment in doing so, but its right — to unilaterally rescind ticket purchases and bump its passengers from flights (The Small Print vs. The Big Issue).

You ask “What should ‘great defenders of free people and free markets’ suggest instead of the contract?”, and posit that “alternatively, a government can govern: regulations, laws, legislation, etc.”

Since I’m not in the habit — even occasionally — of defaulting to State action, let me loop back around to what I have said, or, if not said well, what I have intended to say.

But first I would like to clear away some of the underbrush that often shows up in discussions like these.

The argument here has nothing to do with denying a passenger boarding for reasons of hygiene, drunkenness, unruly behavior and safety.  In the case at hand we are addressing none of those things.

Nor am I arguing about the right of an airline to bid and buy back the property right in a ticket or the license to a seat from a passenger in a market transaction.  As you know, denied boarding terms are little more that federal price fixing.  They seek to protect the airline cronies from the real – the market cost —  of buying back seats from passengers.

Here’s some of the language of 14 CFR (Code of Federal Regulations) 250.5 applying payment limits to those denied boarding:

”Compensation shall be 200% of the fare to the passenger’s destination or first stopover, with a maximum of $675, if the carrier offers alternate transportation that at the time …”

“Compensation shall be 400% of the fare to the passenger’s destination or first stopover, with a maximum of $1,350, if the carrier does not offer alternate transportation that, at the time… “

Not much libertarian about that.  I suspect that we both would insist that if the airlines want to overbook and assume the risk at market price of buying back seats from those who have purchased them, in a free market they will be allowed to do so.  I have myself – in younger days when I could be more free-spirited about my schedule – sold back my seat to an overbooking airline for a price I thought fair.

As to whether there is some collective advantage to the airline’s inconveniencing of bumped passengers (“beneficial to the travelling public,” in your description), that is not a calculation that I dispute.  Or that I would defend.   In fact, in an overlooked point made in my original piece, for the same reasons the Soviets couldn’t compute, nobody really knows how beneficial the practice is.  There are no market prices involved.

My argument instead is to defend the fundamentals of a free market.  It is a defense of the reliability of market transactions.  It insists that we are entitled to the possession, use, and enjoyment of the property we have purchased (or for the quibblers, if not the property right to a seat, the license they have purchased to a seat).

Those taking United’s part in this adhesion contract are saying the sale of the seat on a flight is conditional:  It is conditioned on nothing more than whether the seller, United, at its unilateral discretion, deems it advantageous to itself to honor the sale.  Markets cannot thrive in such an environment;  if a sales contract is made with no intention that it be legally binding, even if it specifies internally that it is not binding on one party, then it is no contract at all.

Certainly Adam Smith wouldn’t have thought it one:  “We may observe here that the obligation to perform a promise can not proceed from the will of the person to be obliged, as some authors imagine.  For if that were the case a promise which one made without an intention to perform it would never be binding.”

The common law is not perfect, but it often beats whatever is in second place.  And way back in this case is the administrative and statutory law that the airlines and their lobbyist have cobbled up.

As Rothbard put it:  “In the Anglo-Saxon common law, ‘law’ did not mean what we think today: endless enactments by a legislature or executive. ‘Law’ was not enacted but found or discovered; it was a body of customary rules that had, like languages or fashions, grown up spontaneously and purely voluntarily among the people.”

Among the things discovered after centuries of refinement and productive human practice by what Rothbard called “the largely libertarian common law,” is that offer, acceptance, and consideration are pretty good places to start when examining when someone has made a purchase; that both parties to a contract should intend equally to be bound; and that people, even airline passengers, are entitled to what they have purchased.

Best wishes,

Charles Goyette


9:26 pm on April 25, 2017