Stark, Choplin and Linnabery, ‘Dysfunctional Contracts and the Laws and Practices That Enable Them: An Empirical Analysis’

… But do laypersons really comprehend these clauses that appear to lawyers and judges as clearly limiting liability? And if not, how does this impact, first, the premise that the laypersons bargained for this result when they signed the purchase agreement and, second, the application of the unconscionability test for striking down a limitation of liability clause? This Article discusses a “Remedies Experiment” the authors ran which attempts to assess the layperson’s comprehension of the highly unfair limitation-of-remedy clauses found in so many real estate developer form contracts. We found that the results from our experiment reflect a widespread failure of the participants to understand the impact of this type of clause on their rights after a breach. These results undercut the premise upon which the unconscionability test rests: that the home purchaser understood the clearly worded limitation clause and therefore bargained for this result. Thus, while many courts refuse to strike down these clauses under the unconscionability test, this Article argues that the results from the Remedies Experiment should lead courts to adopt a different set of tests for ruling on the enforceability of limitation-of-remedy clauses in home purchase contracts. Part I of this Article highlights the relevant results from two empirical studies Professor Stark conducted regarding major problems with the fairness of purchase agreement forms …

Debra Pogrund Stark, Jessica M. Choplin & Eileen Linnabery, Dysfunctional Contracts and the Laws and Practices That Enable Them: An Empirical Analysis, 46 Indiana Law Review 797 (2013).

First posted 2014-02-04 07:42:30

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