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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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    Citations

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    Cited by:

    1. Michael Faure & Hanneke Luth, 2011. "Behavioural Economics in Unfair Contract Terms," Journal of Consumer Policy, Springer, vol. 34(3), pages 337-358, September.
    2. Rasmusen, E., 1994. "A Model of Negotiation, not Bargainig," Papers 94-007, Indiana - Center for Econometric Model Research.
    3. 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.
    4. Benito Arruñada, 2007. "Market and institutional determinants in the regulation of conveyancers," European Journal of Law and Economics, Springer, vol. 23(2), pages 93-116, April.
    5. Niblett, Anthony, 2013. "Tracking inconsistent judicial behavior," International Review of Law and Economics, Elsevier, vol. 34(C), pages 9-20.
    6. Kenneth Ayotte & Patrick Bolton, 2011. "Optimal Property Rights in Financial Contracting," The Review of Financial Studies, Society for Financial Studies, vol. 24(10), pages 3401-3433.
    7. Georg von Wangenheim & Sylvia Rückebeil, "undated". "Die unterschiedlichen Grundlagen von deutschem AGB-Recht und europäischer Klauselvertragsrichtlinie – ökonomische und rechtliche Überlegungen zu Systembrüchen in der Umsetzung von Europäischem Recht," German Working Papers in Law and Economics 2007-1-1177, Berkeley Electronic Press.
    8. Oren Bar-Gill & Lucian A. Bebchuk, 2007. "Consent and Exchange," NBER Working Papers 13267, National Bureau of Economic Research, Inc.
    9. 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.
    10. D׳Agostino, Elena & Seidmann, Daniel J., 2016. "Protecting buyers from fine print," European Economic Review, Elsevier, vol. 89(C), pages 42-54.

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