Can there be Limited Liability in a Free Market?

[Bohner]

OK, thanks! Let's think out the implications.

So, if I simply own a table that the company has in its meeting room, or even if I own the CNC machine that is 100% of the capital equipment that the company uses and responsible for 100% of its production and revenue, I am not necessarily an owner of that company. Even though it's my CNC machine that cousin Jim-Bob is using to churn out defective land mines, and I gave him clear and explicit permission to do so, knowing full-well that they are defective and Jim-Bob is defrauding his customers, I am not an owner of the company as long as I do not do #2 and take part in the company's profit and losses. And thus, in your system, as a non-owner I am perfectly entitled to keep all of this at arm's-length and if the customers come to call, they can't touch me or my assets at all. Because I'm not an owner.

Am I correct in this analysis?

No you wouldn't be liable in this scenario. Why would you be? Jim-Bob is the one making the mines and reaping all the profit. Hell, what's even in it for you?

 

[cubical]

Can there be limited liability in a free market?

Well, can there be contracts in a free market?

Unless I am missing something such as what exactly a "free market" is, of course limited liability can exist in a free market.

 

[helmuth_hubener]

No you wouldn't be liable in this scenario. Why would you be? Jim-Bob is the one making the mines and reaping all the profit. Hell, what's even in it for you?

Oh, well he might be paying me handsomely for the use of the CNC machine. But as long as he's paying hourly, or per-piece, or yearly, or flat rate, or variable rate, or absolutely any other way, actually, I still am not an owner and so I'm fine.

I guess the main issue I think I would have with your view (if I understand it correctly) is that I don't see there being such a hard and bright line between being an "owner" investor and being a "non-owner" investor. I explained it all in an earlier post, how one could simply look at non-voting stock ownership as a type of loan, wherein the creditor is paid back using a formula based on the profits or losses of the company, rather than based on a formula involving interest rates and risk-levels and credit ratings, etc. But let's go even beyond that. In start-up financing, at one end of the spectrum there are the people who invest in your company and in exchange simply get equity and that's it, and then at the other end there are people who invest in your company and in exchange get a contract for repaying the money, plus interest. But then there are the VCs who usually want to have it both ways; to straddle the fence, so to speak. They will invest money like the second group -- like a loan, that is -- but then they will also have a clause that they have the option to buy in if they want. So they can convert that debt into equity, which they will probably do, say, right before the company goes public. So is the VC an owner or an innocent bystander? Is he innocent at first and only an accomplice in crime after he converts his debt to equity?

See, it just seems fishy to me that there should be any moral difference at all between the VC and the equity buyer, or the pre-conversion VC and the post-conversion VC, or the bank making a loan and the equity buyer. I don't see any vast moral gulf here. And if there is one, I don't see it as unbridgeable. If it turns out that you are right and "owners" must be fully 100% morally liable for the actions of everyone they invest in, then the market will simply write up new contracts such that such people are not owners at all, but simply have the right to be paid back according to a certain formula that emulates ownership. This would be trivial. It would take one lawyer one day to write up the template, and then the entire free market would be set from there on out and anyone like you who wanted to complain would have no leg to stand on.

 

[Bohner]

Oh, well he might be paying me handsomely for the use of the CNC machine. But as long as he's paying hourly, or per-piece, or yearly, or flat rate, or variable rate, or absolutely any other way, actually, I still am not an owner and so I'm fine.

I guess the main issue I think I would have with your view (if I understand it correctly) is that I don't see there being such a hard and bright line between being an "owner" investor and being a "non-owner" investor. I explained it all in an earlier post, how one could simply look at non-voting stock ownership as a type of loan, wherein the creditor is paid back using a formula based on the profits or losses of the company, rather than based on a formula involving interest rates and risk-levels and credit ratings, etc. But let's go even beyond that. In start-up financing, at one end of the spectrum there are the people who invest in your company and in exchange simply get equity and that's it, and then at the other end there are people who invest in your company and in exchange get a contract for repaying the money, plus interest. But then there are the VCs who usually want to have it both ways; to straddle the fence, so to speak. They will invest money like the second group -- like a loan, that is -- but then they will also have a clause that they have the option to buy in if they want. So they can convert that debt into equity, which they will probably do, say, right before the company goes public. So is the VC an owner or an innocent bystander? Is he innocent at first and only an accomplice in crime after he converts his debt to equity?

See, it just seems fishy to me that there should be any moral difference at all between the VC and the equity buyer, or the pre-conversion VC and the post-conversion VC, or the bank making a loan and the equity buyer. I don't see any vast moral gulf here. And if there is one, I don't see it as unbridgeable. If it turns out that you are right and "owners" must be fully 100% morally liable for the actions of everyone they invest in, then the market will simply write up new contracts such that such people are not owners at all, but simply have the right to be paid back according to a certain formula that emulates ownership. This would be trivial. It would take one lawyer one day to write up the template, and then the entire free market would be set from there on out and anyone like you who wanted to complain would have no leg to stand on.

With regard to the mines issue, I still think that you wouldn't be liable though an argument can be made if to take a piece for each mine produced. Otherwise, you are pretty much a landlord.

That being said, you don't necessarily have to be an owner in order to be liable.

 

[osan]

Originally Posted by osan Limited liability is a mechanism by which one attempts to secure all the benefits of operation without all of the costs. I believe in full liability corporations.



No, it is not. It is, rather, a mechanism whereby individuals can voluntarily choose to take upon themseves some of the elements of ownership, selectively. They choose to associate with another group of individuals in a specific way, defined by contract. This is thus really a freedom of association issue.

I suppose I was insufficiently specific in my response. Liability exists even to a shareholder when that shareholder is aware of criminal actions taken on his behalf by the managers he hires to operate that entity. The corporate veil is baloney because it is unnecessary. With or without its presence, no innocent manager or shareholder should be held accountable for the crimes of others, all else equal, just as they should not escape otherwise rightful culpability. An additional hazard assumed by a shareholder is that of knowledge of a crime committed or likely about to be. If a shareholder knows, for example, of a board decision that would result in crimes committed against some third party, whether customers or whomever, onus rests with that shareholder to do one of two things: divest or report. If a shareholder divests himself of his stock prior to the policies being acted upon, he is free and clear of liability as he has avoided becoming an accomplice to the fact. The necessary and sufficient combination of ownership and knowledge links him intimately and directly to the actions of those committing wrongful acts. Breaking the link through divestiture is the only way to avoid becoming an accomplice. If he is for some reason unable to divest in time or does not wish to, then he is faced with a choice: report the pending crimes for investigation or become an accomplice. It is really quite simple. The choices are all there, unpleasant as they may otherwise be. Having broken the link through divestiture removes his exposure to culpability because he is no longer formally associated with the entity he believes may be knowingly committing acts that will result in harm to others.

Example: if my buddies and I plan a big bank heist just for the kicks of seeing if we could come up with a good plan and in the course of our scheming come up with something truly ingenious and the other guys decide to act on it, if I remove myself from the circle of conspirators prior to material action I remove my culpability in the event they ultimately choose to cross the line of criminality.

The way to avoid all such accountability is to remain naive and that is the right of all shareholders, but the cost there is lack of direct involvement. Once one begins picking and choosing the issues with which one will have intimate knowledge, he is dancing with a capricious devil because those charged with investigating may not be able to clearly determine the issues about which one had sufficient knowledge to render him criminally liable. This is a risk one assumes and if that is OK with them, it is with me as well. However, let them not come crying when after criminal charges have been leveled that they are unable to demonstrate their ignorance in the face of credible, if misleading evidence casting reasonable doubt upon the claim. If you want to swim with sharks, be prepared for the consequences of being bitten. It is, after all, what sharks do. One may not assume risk before the fact like a big tycoon and reasonably expect to be able to repudiate it with whining and excuses like a sissy after things do not work out as one had hoped. This is like asking the house for one's money back after having lost the family fortune at the roulette table. Things simply do not work that way.

The only benefit of limited liability in actual fact is to shield the guilty from true accountability. The burden of proof in itself is plenty high for any prosecutor such that a guilty shareholder is likely to avoid culpability if they maintain a cleverly low profile in almost any event. Shareholders do not need additional protections that actually aid and abet the avoidance of having to stand accountable for their complicity in criminal acts when avoidance of that complicity is always an option.

On the practical side there is one slight wrinkle, that being where a management decision does not lead one to a reasonable conclusion that harms will not result. But even in this case I see no reason for the special protections of limited liability. If you as a shareholder knew of a decision to act and felt it was wrong because it could be reasonably construed to result in harm to others, onus clearly rests with that man to raise an objection. If after having raised the alert the managers assure him in reasonably convincing written or otherwise recorded fashion that harm shall not result, I would consider the shareholder indemnified against culpability in the event actual harms came to others as the result of whatever actions and/or policies the board decided to put into motion. This illustrates what I believe to be a truth about investor reality that many wish to avoid and therefore why limited liability of the shareholder is so attractive: if you are going to be an "active" investor, vis-a-vis silent, you have involved yourself in some of the day to day decisions of the very management you hired to operate the company. That choice entails responsibilities above and beyond that of the silent partner and the choice should be yours to make, but once made you cannot disavow rightful accountability after the fact. This is what I mean about people wanting something for nothing.

Those in favor of LL want something for nothing and that is NEVER a good way to go.

No, they want something for something. A shareholder is different than a sole proprietor. The sole proprietor has many powers that the shareholder does not have. And vise versa. They are two different things. I see no reason to outlaw any form of association which does not inherently aggress against anyone. And limited liability corporations don't aggress against anyone.

I must disagree for the reasons cited above. Nothing I wrote suggests outlawing anything that is in fact outside of criminality. I was only stating that accountability cannot be rightly avoided, and that limited liability has been wrongly and successfully used to do precisely that.

Yes, the shareholder is different - up to the point the nature of his ownership slips from silence. At that point he begins assuming the risks of the proprietor or, more precisely, the board member and at that point I say "in for a penny, in for a pound." No sense in assuming exposure without reaping the benefits, and to that point I would recommend one vie for a spot on the board in order to have a more effective say.

Exempting anyone from freedom's concomitant responsibilities is evil.

Period.

Yes, but the existence of a responsibility, or potential responsibility, somewhere out there in the Universe does not obligate me to take on that responsibility.

Nothing I wrote suggests this. My explicit position is that if you are indeed responsible for some harm caused, you should not be able to hide behind a legal formality to avoid accounting for your decisions. I implied nothing other than this.

If you want the thrill and power of flight, you must bear the risk and consequences of falling.

Is it somehow cheating to get a thrill and a rush without actually risking your life?

When in so doing results in harm to others and you use the aforementioned formal instruments to avoid paying the price, then yes. Where no harm results, do as you please. Where harm results, stand tall before the man and make your case for your innocence. Were all the players in such games honest there would be few problems. Alas, prosecutors are equally criminal with those they seek to convict. In practical terms, we are in a huge mess.

I don't think you've thought this through carefully.

If we believe in freedom of association, there is absolutely no way to ban limited liability corporations (a.k.a. massively multiplayer partnerships).

I have thought is out quite well, actually, and my position is demonstrated correct. Nothing I have espoused restricts freedom of association. To say there is no way to "ban limited liability corporations" is nonsense when one considers what the term actually means. Limited liability has been and continues to be used as a get out og jail free card. I have no objection to people associating in any manner they please. But it they bring harm they are responsible to those so harmed to make things right. That is my assertion and I doubt you will be able to break the reasoning. You have failed to stick to the salient points, rather diverting attention to other issues unrelated. What I wrote speaks strictly to accountability and the moral invalidity of using legal formalisms to avoid it. You have attempted, whether intentionally or by accident or misinterpretation, to imply that my position interferes with one's right to associate. Nothing could be further from the truth.

It is possible you did not sufficiently understand that which I wrote and it is likewise possible I did not write with sufficient completeness, all resulting in our talking past each other. I am willing to assume this as having been the case, considering it now clarified, and happy to call it good.

What do you say?

 

[osan]

Corporate personhood only allows the corporation to enter into contracts.

Unless I am missing something, you are not quite correct. Corporate personhood allows for far more than this. An incomplete list:

• Human right to acquire, keep, and dispose of property
• Human right to avoid self-incrimination
• Human right to due process of law
• Human right to defend oneself
• Superhuman ability to live eternally, in principle
• Ability to avoid personal accountability for one's actions through the corporation

There are others, but perhaps the point is made.

Suppose you contracted with Bill, of Bob and Bill Roofing, to fix your roof. You gave him a $2500 deposit. The next day, Bill accidentally falls off another roof and dies. In your corporate-free world, Bob would have absolutely no obligation to perform as per the contract. After all, you had a deal with Bill, and that deal died along with him.

This is can be equally true with corporations. Such a contract cannot compel action in absolute fashion. When Bill dies, onus rests with Bill's estate to restore the $2500 to the customer and nothing more unless a clearly demonstrable material loss was incurred as the result of Bill's untimely demise. For example, the roof in question is that on a warehouse and it was damaged, thereby needing repair. Timing was critical because of looming weather. Bill's death, resulting in non-fulfillment of the contract, further resulted in the loss of some or all of the inventory in the warehouse. The customer is then entitled to restoration of equity in addition to the deposit. But it must be pointed out that he may be SOL. Contracting with Bill only carried risk and in this case things did not work out well. Remedies may be available... or not. That is what courts of equity are ostensibly in place to resolve.

Even without formal corporations, your contrived scenario is readily avoided by the careful construction of the agreement that would state in the event of circumstances whereby Bill was unable to fulfill his obligations, Bob would then take up. No need for corporate anything - just a reasonable application of one's brains and the discharge of due diligence in pursuit of one's interests.

But because we actually have a corporate entity, in reality your deal wasn't with Bill. Bill signed the contract on behalf of the corporation. Meaning that Bob has to not only fix your roof, he even has to do it at the price Bill agreed to.

Technically true, but the formal protections are not uniquely available via that instrument. In fact, with the right contractual fine print, it would be a simple matter for the corporation to avoid that responsibility by stipulating that in the event of Bill's demise, all bets are off and the customer forfeits his deposit.

There is NO legal formality that in itself protects one from anything. In the absence of righteousness in the right men's hearts, any baleful result is possible. We see this in our courts every single day.

As with any other such legal instrument, the value is only as good as the degree and manner in which it is given force. To regard these things in some absolute light is greatly misguided. If I, alone on an island, declare myself king and issue the mandate that no man masturbate in public, hath it any meaning other than words broadcast to a deaf and indifferent world? What value the fiat if I, as king, prance out to the beach and begin spanking my monkey with impunity? What's the old saying about "bullshit walks"?

 

[helmuth_hubener]

It is possible you did not sufficiently understand that which I wrote and it is likewise possible I did not write with sufficient completeness, all resulting in our talking past each other. I am willing to assume this as having been the case, considering it now clarified, and happy to call it good.

What do you say?

I think that this is indeed what happened. But you have now clarified yourself very well and thoroughly, I feel, and so I think we are both on the same page.

Your position is that everyone who is an owner of something (a company, a taco, a rental home) and knows of crimes being committed with his property is culpable for those crimes unless they either 1) try to stop the crime, or 2) decide to just let the crime continue but sell the property. Is that right?

In the absence of any especially deep thought on the issue, I would say your position sounds reasonable at least. It may be correct.

If it turns out that you are correct, and owners are accountable for all the goings-on on and about their properties of which they are aware -- or even if Bohner is correct and there isn't even any awareness proviso -- that doesn't really put a damper on limited-liability for all practical purposes. That is, it doesn't stop people from forming the kind of association with businesses that many want to form. Millions of people want to form a passive shareholder type of relationship, as demonstrated by their actions. If your moral reasoning turns out to be correct and accepted, they can avoid culpability by just avoiding becoming deeply knowledgeable about the companies in which they invest. Or, an even more bullet-proof solution would be that the market simply changes stockholders' status from "real" owners to "virtual" owners (via a contractual arrangement I have explained in previous posts).

In all practicality, virtually all of the stock positions of layman investors is owned not in their own names but in the names of brokerage firms. And so any zealous damage-seeker would not be able to come after Joe Smeedleson anyway; he would be going after Vanguard or Charles Schwab.

 

[euphemia]

In my opinion, liability is based on two things: quality control and risk.

I want to specifically address the idea of risk. When the economy was doing well, people felt free to invest in the stock market because the returns were high. The payoff was large for a while. When the market fell, investors wanted to blame someone, and the blame fell on big business and Wall Street. Investors apparently forgot the rules, and ignored the risks until the result was a net loss for them.

Again, in my opinion, the massive bailouts that took place under Bush and Obama were merely another transfer of wealth from middle income earners to high income investors.

People with money need to weigh the risk of investment and pay attention to the fluctuation of their own worth. Direct responsibility is the only way to keep a market free. If a person cannot afford to risk the capital, he should not invest in a way that risks the capital.

In a way, this is a similar thing to what has happened with health insurance and health care. People are not in touch with the cost, so they use higher risk procedures (as opposed to health maintenance), they do not pay their bills directly, and do not see how their investment raises prices and limits accessibility. Because of this kind of thinking, middle income earners are being robbed to pay people at the extreme ends of the bell curve, and are essentially being shifted into a lower standard of living because a larger portion of their earnings are confiscated, and transferred to other people.

 

[helmuth_hubener]

See, it just seems fishy to me that there should be any moral difference at all between the VC and the equity buyer, or the pre-conversion VC and the post-conversion VC, or the bank making a loan and the equity buyer. I don't see any vast moral gulf here. And if there is one, I don't see it as unbridgeable. If it turns out that you are right and "owners" must be fully 100% morally liable for the actions of everyone they invest in, then the market will simply write up new contracts such that such people are not owners at all, but simply have the right to be paid back according to a certain formula that emulates ownership. This would be trivial. It would take one lawyer one day to write up the template, and then the entire free market would be set from there on out and anyone like you who wanted to complain would have no leg to stand on.

With regard to the mines issue, I still think that you wouldn't be liable though an argument can be made if to take a piece for each mine produced. Otherwise, you are pretty much a landlord.

That being said, you don't necessarily have to be an owner in order to be liable.

So are we now in total agreement? Are you conceding that yes, even if you are right about "owners" being for some reason irrevokably, metaphysically liable for absolutely everything their property does, even then the market can simply make out "virtual ownership" contracts, solving this moral issue completely, and leaving you and anyone else with no grounds whatsoever to attack them as illegitimate?

Or is your comment "you don't necessarily have to be an owner in order to be liable" meant to leave the door open for you to somehow claim that non-owner investors can also be liable for everything in which they may invest, and thus you still can rightfully ban corporations?

 

[tommyrp12]

I voted no.

Limited liability is something that comes with corporate personhood which is a government fiction . Everyone has the right to make a living with or without the blessing of the feudal lords so it is not necessary to differentiate between corporation's and individuals involved in conducting business.

A contract with two or more people defining liability for the company internally is fine I don't think it matters how the companies ownership is divided up, but everyone involved will be responsible for the damages they do to outsiders and the responsibility can be divided as per the agreement. After all it was all voluntary no one forced them as a group or individual to take the risk. I don't know what form restitution would take without the government or third party arbitrator it could be violence or property damage if proper measures are not taken. I would be covering my bases if I did business in such a system. Perhaps its for the best.

 

[danda]

Forget shareholder liability for the moment. think about the decision makers that are presently shielded from liability.

It is impossible for a corporation to DO anything. It is just a collection of individuals. Individuals DO things.

In a free society individuals should be held responsible for their actions. So if the actions of a group of individuals acting together is judged to be in the wrong, then the individuals amongst that group that performed and/or directed the wrongful actions should be held personally accountable.

This would mean that board members and executives would act a LOT more responsibly.

 

[erowe1]

corporate personhood ...is a government fiction

No it isn't.

 

[Bohner]

So are we now in total agreement? Are you conceding that yes, even if you are right about "owners" being for some reason irrevokably, metaphysically liable for absolutely everything their property does, even then the market can simply make out "virtual ownership" contracts, solving this moral issue completely, and leaving you and anyone else with no grounds whatsoever to attack them as illegitimate?

Or is your comment "you don't necessarily have to be an owner in order to be liable" meant to leave the door open for you to somehow claim that non-owner investors can also be liable for everything in which they may invest, and thus you still can rightfully ban corporations?

No... I think just because you own the machine doesn't make you liable in the same way that one of your tenants killing a hooker in an apartment you rent out doesn't make you liable just because you are the landlord. If you simply rented out the machine and it was your buddy who was acting out of his own free will and was the mastermind of this fraudulent plan then he is the one that's liable.

My comment about not necessarily having to be an owner in order to be liable means that lets say a president of a company who doesn't own any stock makes a decision that results in multiple 3rd parties being injured or killed, even though he's not an owner, he should be at least partially liable because it was his decisions that led to those injuries.

 

[tommyrp12]

No it isn't.

Well then tell me how its relevant to anyone who is not a government trustee/employee ?

 

[helmuth_hubener]

No... I think just because you own the machine doesn't make you liable in the same way that one of your tenants killing a hooker in an apartment you rent out doesn't make you liable just because you are the landlord. If you simply rented out the machine and it was your buddy who was acting out of his own free will and was the mastermind of this fraudulent plan then he is the one that's liable.

My comment about not necessarily having to be an owner in order to be liable means that lets say a president of a company who doesn't own any stock makes a decision that results in multiple 3rd parties being injured or killed, even though he's not an owner, he should be at least partially liable because it was his decisions that led to those injuries.

I agree with the above on all counts. So it sounds like we can join hands in harmony.

 

[osan]

I think that this is indeed what happened. But you have now clarified yourself very well and thoroughly, I feel, and so I think we are both on the same page.

Your position is that everyone who is an owner of something (a company, a taco, a rental home) and knows of crimes being committed with his property is culpable for those crimes unless they either 1) try to stop the crime, or 2) decide to just let the crime continue but sell the property. Is that right?

More or less. I would more generally state it this way: if you are a true owner of property, you are responsible for what is done with that property with your consent, whether by you or a third party. If you give your pistol to your buddy knowing he is going to rob the bodega, you share guilt in his actions. If you did not know, you are guiltless. Example: my younger friend Mikey, rest his poor tormented soul, borrowed his neighbor's 870 and promptly shot his own brains out in the living room because of his bitch wife - long story. The neighbor, having had no reason to suspect he would do such a thing, could not be held at fault for having given him the gun.

In the absence of any especially deep thought on the issue, I would say your position sounds reasonable at least. It may be correct.

I cannot readily contrive a case in which this does not hold.

If it turns out that you are correct, and owners are accountable for all the goings-on on and about their properties of which they are aware -- or even if Bohner is correct and there isn't even any awareness proviso -- that doesn't really put a damper on limited-liability for all practical purposes.

I think awareness is a key issue. A problem issue, of course, is whether a claim of ignorance is credible. If you buy shares of GM and toss them into your deposit box and that it the long and short of your involvement, when GM is caught having knowingly built cars that would fail in ways resulting in death, you are in the clear. But if you can be demonstrated to have had more direct involvement in the daily operations, then the standard of reasonable doubt becomes relevant and you stand to find yourself at some jeopardy. If you want to display your organ in public to impress everyone with its size, you assume the risks and responsibilities of doing so. Otherwise, keep things zipped neatly away.

That is, it doesn't stop people from forming the kind of association with businesses that many want to form. Millions of people want to form a passive shareholder type of relationship, as demonstrated by their actions. If your moral reasoning turns out to be correct and accepted, they can avoid culpability by just avoiding becoming deeply knowledgeable about the companies in which they invest. Or, an even more bullet-proof solution would be that the market simply changes stockholders' status from "real" owners to "virtual" owners (via a contractual arrangement I have explained in previous posts).

Agreed with the exception of the virtual owner bit. You either own something or you do not. Virtual ownership stands only to muddy waters that are otherwise intrinsically clear as crystal. Passive ownership is perfectly insular if you keep your fingers out of the cookie jar and leave its contents to those who were hired to manage it. The moment you become more directly involved, the line delimiting what you know v. what you do not can become rapidly blurred, exposing you to risk of being held guilty for things of which you had no knowledge. We must bear in mind the nature of prosecutors - they make their bones on putting people into prison - as many as possible on a framework of the worst possible charges for which they feel they can MAKE a case. "Make" as in contrive as matters of minimally plausible and permissible form regardless of truth.

In all practicality, virtually all of the stock positions of layman investors is owned not in their own names but in the names of brokerage firms. And so any zealous damage-seeker would not be able to come after Joe Smeedleson anyway; he would be going after Vanguard or Charles Schwab.

AH, OK, I get what you mean. In a sense you have invested in the broker, the agreement being that you get the dividends and other benefits... minus a fee, of course. You are paying to avoid prosecution. But in a sense the risk remains because if you get yourself all involved with the broker's business, you assume the same exposure hazards.

 

[osan]

What?

How do you break a contract that has never been signed or agreed to?

There are things called "implied contracts". You go to a restaurant and upon ordering a meal you have entered into an implied contract with that establishment to pay for the food you order and consume. Were the contract not there by implication, then everyone would have to sign a contract prior to being seated and that would probably prove annoying as hell for everyone, though in principle it is not a bad idea.