Signing Without Reading

Abstract

Most people sign standard term contracts without reading them. This gives drafters an incentive to insert one-sided, inefficient terms. This problem can be solved directly by giving the drafter a duty to draft efficient terms or indirectly by giving the signer a duty to read (which may remove the incentive to insert one-sided terms if a sufficient number of signers do read the contract). The problem can also be solved in a more draconian way by holding all standard terms unenforceable, irrespective of whether they are efficient or one-sided (as proposed by Radin, Margaret Jane, Boilerplate: the fine print, vanishing rights, and the rule of law. Princeton University Press, Princeton, 2013). Finally, the problem can be solved through hybrid instruments – for instance, American law gives the signer a duty to read but intervenes when terms are unconscionable.

In this short chapter, written for Springer’s forthcoming Encyclopedia of Law and Economics (J. Backhaus, ed.), I argue that a duty to draft efficient terms is the superior instrument. Doctrinally, this means that unread contracts are best seen as agreements to delegate the drafting task to the party that can do so at least costs, as is the case under German law. Because rational parties will never give one of them a wildcard to insert inefficient terms, standard terms should be enforced only to the extent they are efficient. Moreover, economic logic dictates that it should be upon the drafter to prove that the terms are efficient, rather than upon the signer to prove that they are inefficient.