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

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  • Avery Katz

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.

Suggested Citation

  • Avery Katz, 1990. "Your Terms or Mine? The Duty to Read the Fine Print in Contracts," RAND Journal of Economics, The RAND Corporation, vol. 21(4), pages 518-537, Winter.
  • Handle: RePEc:rje:randje:v:21:y:1990:i:winter:p:518-537
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    Cited by:

    1. Yannis Bakos & Florencia Marotta-Wurgler & David R. Trossen, 2014. "Does Anyone Read the Fine Print? Consumer Attention to Standard-Form Contracts," The Journal of Legal Studies, University of Chicago Press, vol. 43(1), pages 1-35.
    2. D׳Agostino, Elena & Seidmann, Daniel J., 2016. "Protecting buyers from fine print," European Economic Review, Elsevier, vol. 89(C), pages 42-54.
    3. Rasmusen, E., 1994. "A Model of Negotiation, not Bargainig," Papers 94-007, Indiana - Center for Econometric Model Research.
    4. 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.
    5. Abraham L. Wickelgren, 2016. "An Economic Analysis of Arbitration versus Litigation for Contractual Disputes," Journal of Law and Economics, University of Chicago Press, vol. 59(2), pages 393-410.
    6. Niblett, Anthony, 2013. "Tracking inconsistent judicial behavior," International Review of Law and Economics, Elsevier, vol. 34(C), pages 9-20.
    7. Oren Bar-Gill & Lucian A. Bebchuk, 2007. "Consent and Exchange," NBER Working Papers 13267, National Bureau of Economic Research, Inc.

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