For decades, legislatures and courts have sought to supress unfair terms in standard form contracts, but their drafting has not improved.

The courts acknowledge that an adhering party rarely reads a standard form before signing it. Empirical research confirms this. Law and economics scholars explain that it is not rational to read the form, given the costs and benefits of reading. For these and other reasons, even competitive markets in goods or services fail to weed out unfair forms.

If the adhering party does not read the standard form before signing it, what is the legal justification for enforcing its clauses? The courts in most (all?) Western legal systems view clauses in the standard form as express terms of the contract. They could just as well have decided that unread clauses do not form part of the parties’ agreement. Why did they not?

In the course of the 20th century, commentators who addressed the problem of standard form contracts – or contracts of adhesion – demonstrated that they do not sit well with the classical theory of contract based on the will of the parties. They advocated regulating consumer contracts or striking out unfair clauses, but shied away from the idea that clauses unknown to the adhering party cannot form part of the agreement. The reasons appear to be ideological or pragmatic. On the ideological side, critics of the classical theory of contract used standard forms as a counterexample to undermine that theory. On the pragmatic side, commentators were swayed by the argument that standard forms are useful because they reduce the costs of consumer and business transactions.

There is another explanation. Over the course of several centuries, Western law has developed rules that favor contract in its written form. Continental legal systems show a preference for written over testimonial evidence. In common law systems, the parol evidence rule protects an agreement in writing from conflicting oral representations. These rules do not make it impossible for a court to disqualify unread clauses. However, they encourage the tendency of courts and their audiences to confound the writing that evidences a contract with the contract itself.

In my opinion, the express terms of a contract ought to be terms that the parties consider and upon which they agree. Realistically, these amount to a handful of terms. The law has always provided rules to supplement the parties’ agreement in the form of default statutory rules, rules of customary law and other implied terms. The main problem with standard forms is that they supplant the default rules that would otherwise apply. By insisting on consent to express contractual terms, the courts would reinstate the common law/ droit commun in its proper role.

 

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