Published on
Monday, August 15, 2022

The Modern Contract is Broken

Authors

Legal contracts are everywhere, online and offline. They are long. They are inscrutable. They are written to disadvantage the average person in every way.

You sign them all the time without thinking about it: website terms of service, apartment leases, iPhone updates, even the credit card slip at a restaurant. No one has the resources to honestly read and understand everything they’re committing to.

American contract law has not kept up with the fact that the number of contracts a person enters into in their lifetime has exploded over the last century, a consequence of exponential economic growth. The law maintains the fiction that you have read and understood every word when you click “I agree”. It’s a lie we all tell nearly every day.

But the reality is that ordinary people have little ability to understand what’s being foisted on them. They have even less ability to negotiate it. As companies become increasingly aggressive in taking advantage of the impossibility of reading every contract in modern life, bargaining power continues to grow lopsided in their favor. Over time, this diminishes our respect for the rule of law and worsens inequality.

It does not need to be this way. We see a world where:

  • 95% of contracts don’t require a lawyer because they are standardized, those standards are understandable by the average person, and those standards are trusted as fair.
  • Standard documents and best practices evolve out in the open rather than behind the closed doors of white shoe law firms and industry associations.
  • People understand what they are signing because the right framing allows that person to focus on what’s important, rather than sift through pages of boilerplate.

The legal industry does not yet have the right abstractions or tooling to achieve this at scale. The path of the software industry shows how we might get there:

Long ago, software development happened on expensive mainframes. It was not possible to develop software if you did not work at a large company. Today, software development is supremely accessible. Much of that is because code can be collaboratively developed in the open, mixed, packaged into libraries, modified and re-distributed. Well-defined interfaces provide abstractions that allow software developers to incorporate someone else’s work into their own in a clean, repeatable, reliable way. Over time, the best software becomes a standard.

The process of software development has gotten so good that it would be absurd to write serious modern software from scratch or by copying and pasting large sections of code you got from somewhere. But this is essentially how lawyers draft contracts.

Forgive them, they have no choice. The only way for a lawyer to use another lawyer’s work is to copy and paste it. As long as that remains true, contracts will remain long and one-sided. And it will never be possible to ensure that an ordinary person can understand what they are signing.

Magistrate builds the technology to make it possible for lawyers and non-lawyers to collaborate on, test, mix, reason about and generate legal documents. For now, we’re using it internally to empower people to generate contracts geared at small businesses that are understandable, fair, and customizable. (Use Magistrate to hire your next independent contractor!)

We plan to publish the underlying raw official legal document templates to allow others to collaborate on them, as well as remix their own to share publicly. We’re bringing about a world where the best legal minds collaborate in the open on documents that suit 95% of use cases, encouraging the development of standards fairer to everyone.

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