The Harmful Effects of Unenforceable Contract Terms : Experimental Evidence

Increased public awareness that sellers routinely insert one-sided or exploitative terms into their boilerplates has resulted in growing pressure throughout the world for broader substantive regulation of consumer contracts. However, recent evidence suggesting that sellers and landlords routinely contravene these regulatory measures by inserting unenforceable terms into their contracts casts doubt on the effectiveness of such regulatory changes. This Article empirically demonstrates the implications of this continuous practice for the non-drafting parties. Building on previous research showing that residential rental agreements often contain unenforceable terms, this Article explores how such terms influence tenants' post-contract decisions and behavior. The experimental studies reported here expose the harmful effects of unenforceable terms, revealing that tenants are significantly more likely to bear costs that the law imposes on the landlord after reading an unenforceable term as opposed to an enforceable term or even a silent lease. These findings lead to a troubling conclusion: While consumers generally enter into contracts without reading them, and thus do not notice any unenforceable terms, these same terms may adversely affect consumers ex post, when a problem or dispute with the seller arises and they then consult the contract. This new evidence suggests that even substantive regulation of consumer markets could fail to achieve its objectives as long as it relies on uninformed consumers to enforce their mandatory rights and protections. The Article discusses the significance of these findings for public policy and regulation