Commercial norms and the fine art of the small con.

• Author: Baird, Douglas G.
• Position: Response to article by Daniel Keating in this issue, p. 2678

Comments on Daniel Keating's `Exploring the Battle of the Forms in Action'

The standard battle-of-the-forms story, often rehearsed in the classroom, is one in which merchants try to take advantage of their contracting opposites. A seller wants to escape the obligations that come with implied terms and seeks to disclaim them in its acknowledgment form. Its buyers do not realize they have been had until after the goods fail. Only then do they read the seller's form and discover that they are without remedy. Conspicuously absent in Dan Keating's fine article, however, is any evidence that supports this story.(1) Some of his merchants talk about putting favorable terms in their forms, but only as a way of counteracting the effect of another form. Nothing suggests a Darwinian struggle in which each seeks to take advantage of another.

There are several explanations. It is possible that the battle goes on, but Keating failed to find it. The large corporations in his sample are unlikely to be victims of forms and are unlikely to have general counsel that admit to using forms to their benefit. Alternatively, evidence may be missing because existing law does its job, more or less. When both parties are even modestly sophisticated, most courts employ some version of a knockout rule. And, by the time the dust settles, we end up with the Code's default rules.(2) Under section 2-207, courts do not take what forms say seriously. If courts do not take forms seriously, we should not expect the parties to either. If, however, we create a regime in which we allow parties to opt out of default rules easily, the battle may become important.

We should, however, take seriously the possibility that Keating found no evidence because the battle of the forms and related activities are not important vehicles for those inclined to advantage-taking. If the risk that merchants will use forms to their advantage is small, we should, as we talk about revising section 2-207, focus more of our attention on the way legal rules can help parties shape terms in ways that work to their mutual benefit.(3) The less we think that advantage-taking is a problem, the more we will be able to provide a set of rules that enable parties to customize terms. Trading one concern off against another is inevitable. Indeed, the failure of section 2-207 stems in large measure from the drafters trying to make one section do too much work.(4)

In these comments, I identify the terrain on which the battle of the forms operates and suggest that, once we take the motivations of those inclined to mischief into account, we should be wary of focusing too much on parties taking advantage of each other with forms. The problem likely exists in some measure and ensuring against the worst abuses is prudent, but we need to keep the problem in perspective.

You make more money by selling people things that they do not need than you do by pretending to give them what they want and then taking it away in fine print. Harold Hill in The Music Man made his money by persuading a town that it needed a boy's band. He did not seek out places where people already wanted to buy seventy-six trombones and then proceed to sell them defective ones. A vision of commercial law that worries excessively about the ability of parties to sneak terms past each other distracts us from the things that matter.

1. THE TERRAIN ON WHICH THE BATTLE OF THE FORMS IS FOUGHT

   It is a commonplace that legal rules do not operate in a vacuum. To understand the effects of a battle-of-the-forms rule, we first need to identify the forces that already are at work. There are two important forces that limit the mischief that might be done through the use of forms: the constraints that norms impose and the constraints of legal sanctions outside of commercial law, such as those for fraud and misrepresentation.

   1. The Force of Commercial Norms

   Commercial law rules affect only those who are around for the long term. Those interested in making a quick killing are likely to be out of the jurisdiction or judgment-proof by the time people catch up with them.(5) Once a person leaves the jurisdiction or is judgment-proof, causes of action do not matter. Rules governing the battle of the forms matter only when the person who wins the battle remains on the scene.

   Those who are in business for any length of time, however, must worry about their reputations. The cases in which legal sanctions matter are those in which reputational forces are necessarily also at work.(6) Moreover, parties are most likely to invest in their reputations in environments where the other party fears advantage-taking. An experience in my own life brought this lesson home to me.

   Many years ago, towards the end of his life, my father wanted to give my mother a piece of jewelry on her birthday. An emerald and diamond pin he saw in a Tiffany's catalogue caught his eye, and he clipped out the picture and sent it to Norm, a jeweler with whom he previously had done business. Norm made a similar pin for a price that, while less than Tiffany's, was hardly insubstantial, and my father entrusted it to me for safekeeping.

   I had never been impressed with Norm. Norm had a small and somewhat seedy shop, and much of his business was in whole-selling items such as tasteless pins in the shape of an American flag with semiprecious red, white, and blue stones. Moreover, the opportunity for advantage-taking was nontrivial. My father was in search of a deal. He wanted a pin like the one from Tiffany's, but for less. Additionally, he was quite ill and did not know much about jewelry. He was not in a position to cast a sharp eye on the transaction.

   Because of my doubts (and because I interpreted my father's charge to care for the pin broadly), I took it to a well-known jeweler on North Michigan Avenue in Chicago. This jeweler examined the pin closely and, after some study, shook his head and told me he had bad news. Emeralds were a very soft stone and mounting them this way was extremely tricky. Unfortunately (but not surprisingly), two of the emeralds had fractured while being mounted. He handed me a magnifying glass and invited me to see for myself. I thought I saw what he was talking about, but was not sure. The jeweler suggested that I return the pin and ask to have the emeralds replaced.

   At that moment, I had little hope that Norm would replace the stones. The flaws were invisible or nearly so. I was not sure I could persuade Norm that...