Post by Sapphire Capital on Aug 1, 2008 2:50:40 GMT 4
Flipping the Script: Contra Proferentem and Standard Form Contracts
David Horton
Boalt Hall School of Law
University of Colorado Law Review, Vol. 80, 2008
Abstract:
Virtually all modern contracts are standard forms. Although courts have long interpreted ambiguities in such agreements strictly against the drafter, they have struggled to explain why they do so. Under sustained academic fire, states are beginning to abandon the strict against-the-drafter doctrine. Recent cases have even refused to certify class actions on the grounds that a corporate defendant's non-negotiated, unilaterally-dictated contract is ambiguous and thus cannot be construed without individualized extrinsic evidence. This Article claims that the rejection of the strict against-the-drafter rule stems from confusion about its normative foundation. Judges and commentators have offered three rationales for the doctrine: that it discourages ambiguity, corrects unfairness, and redistributes wealth. These theories share the goal of improving the quality and legibility of standard form terms. But even if they succeed, the resulting gains are unclear: most consumers ignore the fine print, and those that do not are cognitively biased and thus cannot value terms accurately. Thus, this Article contends that the doctrine is better understood as encouraging uniformity of meaning in mass-produced contracts. Firms cannot reap the benefits of standardization - institutional, informational, and agency savings - if homogeneous terms lack a single, overarching meaning. At the same time, firms have powerful incentives to use ambiguity strategically and retain confusing terms. The strict against-the-drafter rule counterbalances these enticements. In addition, it prevents the absurd consequences that would result if the meaning of identical terms could fluctuate with the particulars of each transaction.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1154243_code1058639.pdf?abstractid=1154243&mirid=3
David Horton
Boalt Hall School of Law
University of Colorado Law Review, Vol. 80, 2008
Abstract:
Virtually all modern contracts are standard forms. Although courts have long interpreted ambiguities in such agreements strictly against the drafter, they have struggled to explain why they do so. Under sustained academic fire, states are beginning to abandon the strict against-the-drafter doctrine. Recent cases have even refused to certify class actions on the grounds that a corporate defendant's non-negotiated, unilaterally-dictated contract is ambiguous and thus cannot be construed without individualized extrinsic evidence. This Article claims that the rejection of the strict against-the-drafter rule stems from confusion about its normative foundation. Judges and commentators have offered three rationales for the doctrine: that it discourages ambiguity, corrects unfairness, and redistributes wealth. These theories share the goal of improving the quality and legibility of standard form terms. But even if they succeed, the resulting gains are unclear: most consumers ignore the fine print, and those that do not are cognitively biased and thus cannot value terms accurately. Thus, this Article contends that the doctrine is better understood as encouraging uniformity of meaning in mass-produced contracts. Firms cannot reap the benefits of standardization - institutional, informational, and agency savings - if homogeneous terms lack a single, overarching meaning. At the same time, firms have powerful incentives to use ambiguity strategically and retain confusing terms. The strict against-the-drafter rule counterbalances these enticements. In addition, it prevents the absurd consequences that would result if the meaning of identical terms could fluctuate with the particulars of each transaction.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1154243_code1058639.pdf?abstractid=1154243&mirid=3