Report No. 199
Unfair Terms in Contract - A Comparative Study
The law relating to unfairness, arising from inequality of bargaining power was developed around the globe, as a separate ground on which contracts can be set aside. Classical legal theory viewed standard form contracts no differently than individually negotiated contracts, and enforced them according to their terms, no matter how harsh or unjust the terms were. Under the classical theory, courts created a conclusive presumption that the signing party understood the terms.
This result was based on the "duty to read" doctrine, which was also developed out of the paradigm of individually negotiated contracts. However, legal scholars and courts recognized the fundamental differences between standard form contracts and the classical models of individually negotiated contracts. Professor Karl Llewellyn [Book Review, 52 Harvard Law Review 700, 704 (1939)] noted the importance of protecting the weaker party's reasonable expectations when interpreting standard form contracts:
"Free contract presupposes free bargain; and free bargain presupposes free bargaining; and that where bargaining is absent in fact, the conditions and clauses to be read into bargain are not those which happen to be printed on the unread paper, but are those which a sane man might reasonably expect to find on that paper."