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Your Terms or Mine? The Duty to Read the Fine Print in Contracts

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  • Avery Katz
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    Abstract

    This article examines the legal rules that govern the interpretation of standardized form contracts. Different legal rules induce different bargaining games between buyers and sellers, and they can influence the efficiency of exchange when communication is costly. The traditional common-law rule, which binds an assenting recipient of a form contract to fine-print terms he has not read, has little effect in encouraging parties to read contracts, contrary to the conventional wisdom among lawyers. Instead, there is little practical difference between a rule that nominally holds the drafter of a form contract responsible for communicating its terms and one that holds the receiving party responsible. Moreover, the traditional rule may be Pareto inferior to a rule providing presumptive warranties when negotiation is costly.

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    Bibliographic Info

    Article provided by The RAND Corporation in its journal RAND Journal of Economics.

    Volume (Year): 21 (1990)
    Issue (Month): 4 (Winter)
    Pages: 518-537

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    Handle: RePEc:rje:randje:v:21:y:1990:i:winter:p:518-537

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    Web page: http://www.rje.org

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    Web: https://editorialexpress.com/cgi-bin/rje_online.cgi

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    Cited by:
    1. Kenneth Ayotte & Patrick Bolton, 2011. "Optimal Property Rights in Financial Contracting," Review of Financial Studies, Society for Financial Studies, vol. 24(10), pages 3401-3433.
    2. Niblett, Anthony, 2013. "Tracking inconsistent judicial behavior," International Review of Law and Economics, Elsevier, vol. 34(C), pages 9-20.
    3. Rasmusen, E., 1994. "A Model of Negotiation, not Bargainig," Papers 94-007, Indiana - Center for Econometric Model Research.
    4. Oren Bar-Gill & Lucian A. Bebchuk, 2007. "Consent and Exchange," NBER Working Papers 13267, National Bureau of Economic Research, Inc.

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