The Borat Problem In Contract Law

The movie Borat is an exceptional example of a loophole in contract law per se. The relevant legal doctrine is known as the parol evidence rule. A typical statement of the rule per Denman CJ in Goss v Lord Nugent (1833), 5 N & Ad 58 is as follows:

[b]y the general rules of the common law, if there be a contract which has been reduced into writing, verbal evidence is not allowed to be given of what passed between the parties, either before the instrument was made, or during the time that it was in a state of preparation, so as to add, or subtract from, or in any manner vary or qualify the written contract.

Put succinctly, the parol evidence rule states that if an oral agreement and a written agreement are in conflict, then the written agreement shall prevail. Indeed, it is in this sense that it is less so a rule of evidence than a substantive rule in contract law which favours objective theory of contract: properly timed offer and acceptance with consideration in the form of a written agreement with a signature at the dotted line. The exception is, of course, fraud, a cause of action in tort.

So what’s the loophole? Recall that in the absence of fraud and perhaps misrepresentation, oral evidence is inadmissible in civil proceedings. Put simply, you can say almost whatever you want and then stuff a standard form contract in someone’s face that says otherwise, and so long as those terms are not onerous or otherwise unconscionable, then that agreement will be enforced.

Now, what does this have to do with Borat? It is natural to wonder how exactly the producer of Borat, Twentieth Century Fox, enticed the participants (or perhaps victims) to subject themselves to Sasha Baron Cohen’s brand of humiliating humour. The answer lies in contract law. They devised a two-prong attack: a lie followed by a standard-form contract. The lie was that they were participating in an “entertaining … documentary-style film” for the Eastern European audience. Lo and behold, the contract basically included a clause which effectively read “we are not liable for fraud” and other such clauses exculpating them from any such representations.

For instance, the producers told Borat’s etiquette coach that the experiences were being filmed for Belarus television for $350. Russell Korobkin, a law professor at UCLA, writes “that the producers used them for an entirely different purpose was improper, and such improper use of their likenesses should entitle them to a legal remedy.” The idea is that the participants in the movie could have demanded substantially more money for their name and likeness had they known about “the movie, its star, and target audience.”

The final story plays out in the federal District Court for the Southern District of New York in Psenicska v. Twentieth Century Fox Film Corp. The court found that the fraud exception applied to the plaintiffs’ claims, but ultimately ruled against them because their reliance on the oral statements was not reasonable.

Thus, the Borat loophole was born.

This blog post relied heavily on the journal article Russell Korobkin, “The Borat Problem in Negotiation: Fraud, Assent, and the Behavioral Law and Economics of Standard Form Contracts” California Law Review, Vol. 101, No. 1 (February 2013), pp. 51-106.

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