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Tuesday, April 25, 2006

"Guerilla Terms" and Standard Form Contracts

Peter_alces_2 "Guerrilla terms," says Peter Alces (Wm. & Mary), are terms that sophisticated parties sneak into standard form contracts contracts in a way that they are kept hidden from the other party.  These terms, he says, can be inefficient as well as unfair.  The paper is, appropriately enough, called Guerrilla Terms.  Here's the abstract:

Recent contributions to economic theory provide the means to reconcile deontological and consequentialist objectives in the case of standard form consumer contracts. An appreciation of the forces operating on those who draft form agreements demonstrates a type of market failure that calls for the balance struck by contract doctrine's inquiry into the basis of substantial rather than merely ostensible "agreement." That is, contract doctrine, through conceptions of "bargain" and "agreement" may police just those transactional contexts in which the apparent disjunction of efficiency and equity may be most pronounced.

This paper proceeds from four premises: (1) It is irrational to read standard forms, those used in common consumer transactions; (2) The terms form drafters include in those standard forms are functionally equivalent to "add on" product supplements (like the printer cartridge you need for your computer printer, or the telephone charges on your hotel bill); (3) "shrouding," effectively hiding the true and complete cost of a purchase, explains the inefficiency at equilibrium of what I refer to as "guerrilla terms," the terms hidden in the boilerplate because it is not in form drafters' interest to bring them to the attention of less sophisticated consumers; and (4) certainty and predictability in the contract law governing form agreements need only be realized in an actuarial and not in a per-transaction sense. The argument presented here supports each of those assertions and reconciles our attitude toward contract doctrine with the reality of standard form agreements.

My conclusions are reinforced by reference to the law and social psychology literature as it relates to contract. A conception of human agency in terms of situation, context, rather than disposition reveals the mechanism by which guerrilla terms accomplish unfair and inefficient results. "Dispositionism," the idea that human actors are defined by the rational disposition they assume, is chimerical, appealing to our most robust conceptions of "self," but is also ultimately false, or at least profoundly incomplete. Social psychology's revelation of our situationist selves - we are in no small part defined by the circumstances that surround us and our often less than rational responses to them - corrects misapprehensions founded on idealistic and ultimately inaccurate depictions of how we engage contract doctrine. Doctrine does not fail so long as we take it seriously; it is only our propensity to translate the elements of doctrine into terms that we, wrongly, assume are constrained by transactional realities that corrupts contract doctrine. I conclude that there is a role for the courts and the common law to play, that contract doctrine founded on substantial bargain and agreement can and should continue to matter, that only conscientious application of classical contract doctrine can realize the goals of equity and efficiency.

[Frank Snyder]

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