The Borat Problem: Fraud, Assent, and the Behavioral Law and Economics of Standard Form Contracts

Abstract:     
Two parties reach an oral agreement. The first then presents a standard- form contract, which the second signs without reading, or without reading carefully. When the second party later objects that the first did not perform according to the oral representations, the first party points out that the signed document includes different terms or disclaims prior representations and promises. I call this all-too-common occurrence the “Borat problem,” after litigation over the 2006 movie of that name based on this fact pattern.

The Borat problem exists on the blurry border between tort and contract law. This article describes the doctrinal indeterminacy and the underlying normative problem of bilateral opportunism that has caused courts to respond to the problem in a variety of inconsistent and unsatisfying ways. It then makes the case that the costs of contracting can be minimized if parties who draft standard form contracts are required to obtain “specific assent” from their counterparts in order to contradict or disclaim prior representations, and non-drafting parties are required to satisfy a heightened evidentiary standard before being permitted to challenge the enforceability of standard form terms on the grounds of fraud or misrepresentation. This efficient solution to the Borat problem is consistent with established common law doctrinal principles.

Number of Pages in PDF File: 61

Keywords: contract interpretation, fraud, bargaining, negotiation, standard form contracts, boilerplate, contracts of adhesion

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