• Video

Are You Bound by a Form You Didn’t Read?

Many transactions in life involve lengthy and complicated forms, like buying a house or renting a car. Most people don’t take the time to read all of the fine print of a standardized contract. Professor Randy Barnett explains that while you are bound by the form you sign, the other party is expected to call attention to any unusual or non-standard requirement in the contract presented. https://youtube.com/watch?v=kAPoWCIMoi0


A very vexatious problem of contract law has to do with the problem of form contracts. Because, realistically speaking, we don't read the forms that we signed. When you sign a document like that, you are assuming the risk that there might be something in that document that you actually don't like. You had the chance to read it, but you didn't read it. Now, we assume a lot of risks in our lives. And we assume risk based on what the costs are of assuming that risk. And so generally speaking, when I'm refinancing my house and I'm signing all these documents, I think that the risk of me signing something, that's actually going to be something I object to down the road is very, very small and not worth the time it takes for me to read everything, assuming I could even understand it, but there is one more principle of contract law that I think should operate, and generally I think does operate. And that is that when I'm doing business with, let's say a mortgage company that is giving me all of these documents to sign, they are what contract law scholars call repeat players. I am a one-shot player. And what's the difference between a repeat player and a one-shot player? A repeat player is somebody who does the same transaction over and over and over and over and over and over and over again. Therefore, the cost of writing out their agreement can be spread over thousands of transactions. They can hire lawyers that are worth it for them to pay for to analyze every word because it's spread over all of these transactions. As a one-shot player, it's not worth it to me for most of the transactions I enter into to hire a lawyer to read over all these documents. But one of the reasons that that's true is that what contract law ought to do is contract law ought to require that repeat players put the terms in their contract that would not come as a big surprise to one-shot players. These are what I call “common sense default rules.” What contract law ought to say? And generally speaking I think does say, is that the substance of these form contracts ought to reflect the common sense of people who have not hired a lawyer, such that they would not be shocked if they were to find out that if they do X, Y, and Z, this is what the consequences will be. Now, if the repeat player wants a term that would come as a surprise to a one-shot player, they need to bring that term to the one-shot players' attention. They need to point this out. They need to say, "when you sign this, this is really what's going to happen." And you find that's true. For example, when you rent a car, when you rent a car, when it comes to the collision damage waiver that you have to sign, the rental car agent makes a really big deal about that. They're also trying to sell you a premium where they're going to pay for that. But even so the reason they're doing that is because they want you to know if anything happens to this car, it's all on you. You can't say you didn't know that. And that brings the manifestation of assent closer to the subjective intent of each of the parties, which is ultimately what we want. We know about that before we sign on the bottom line.

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