Academic journal article William and Mary Law Review

Legal Ignorance and Information-Forcing Rules

Academic journal article William and Mary Law Review

Legal Ignorance and Information-Forcing Rules

Article excerpt

ABSTRACT

People are often ignorant about the legal rules that govern the most common transactions in their lives. This Article analyzes one common regulatory response to our widespread legal ignorance. A surprisingly broad range of legal rules have the ostensible purpose of inducing sophisticated parties to draft express contract language that will inform their contractual partners about the legal rules governing a particular transaction. However, this "legal-information-forcing" objective often remains unrealized because people routinely sign contracts without reading and understanding their terms. In theory, courts could design information-forcing rules that would be truly informative. But recognizing the potential futility of attempts to inform many contracting parties about complex legal rules, this Article also develops and critiques several alternative justifications for "clause-forcing" rules that encourage sophisticated parties to draft express contract terms. Such terms could facilitate the activities of avid comparison shoppers, reviewers, and consumer advocates. Comprehensive written terms also may promote ex post legal clarity and thereby reduce the costs of resolving disputes. Finally, exculpatory clauses allow parties to contract out of the comparatively expensive legal system of dispute resolution in favor of a regime governed by informal social norms. On this account, clause-forcing rules encourage sophisticated drafting parties to signal their preference for a norm-governed relationship, and lawmakers then demarcate the boundary between law and norms by deciding whether to enforce exculpatory clauses. The normative desirability of these clause-forcing rules is unclear, but my exploration of these alternative justifications shows the conceptual poverty of accounts that presume express contract terms inform the majority of unsophisticated parties.

TABLE OF CONTENTS

INTRODUCTION
  I. THE PERVASIVENESS OF INFORMATION-FORCING
     JUSTIFICATIONS
      A. Origins
      B. Information-Forcing Theory Applied to Legal Ignorance
      C. The Hadley Rule Revisited
      D. Some Additional Examples
         1. Implied Just-Cause Employment Contracts
         2. ERISA Rules
         3. Other Disclaimers, Waivers, and Limitations
            of Liability
  II. THE PROBLEM WITH A LEGAL-INFORMATION-FORCING
      JUSTIFICATION
      A. The Persistence of Legal Ignorance
      B. Judicial and Scholarly Perspectives on Legal Ignorance
         1. Disclosure Requirements
         2. Boilerplate and Contracts of Adhesion
         3. Academic Support for Legal-Information-Forcing
            Rules
      C. Designing Effective Express Contract Terms
III. ALTERNATIVE RATIONALES FOR CLAUSE-FORCING
     DEFAULT RULES
      A. "Nudging" Parties to Make Better Choices
      B. Lowering Ex Ante Information Costs
      C. Ex Post Legal Clarity
      D. Opting for Norms Rather Than Law
      E. Some Potential Policy Implications
CONCLUSION

INTRODUCTION

People are often ignorant about the legal rules that govern the most common transactions in their lives. (1) Whether purchasing products and services, leasing real estate, obtaining insurance, borrowing money, or finding employment, many laypeople have a surprisingly poor grasp of basic legal principles. (2) Of course, this ignorance usually causes no harm. We buy what we need and work until retirement without becoming embroiled in legal disputes. But sometimes people involved in conflicts over defective products, unpaid insurance claims, loan defaults, or employment terminations must assert legal rights or defenses, and some of them ultimately resort to litigation. In circumstances like these, having too little legal knowledge can be dangerous. Legal ignorance potentially distorts important economic decisions. Without a clear understanding of their legal rights and responsibilities, some consumers will mistakenly agree to exculpatory contract terms. …

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