Peter A. Alces, Guerilla Terms

• Citation: Vol. 56 No. 6
• Publication year: 2007

EMORY LAW JOURNAL

Volume 56 2007 Number 6

ARTICLES

GUERILLA TERMS

Peter A. Alces^*

INTRODUCTION ............................................................................................ 1512

I. CLASSICAL CONTRACT DOCTRINE DESCRIBES OVERLAPPING

EXCHANGE OBJECTIVES ................................................................... 1515

II. "SHROUDING" ................................................................................... 1523

A. "We Have Found the Enemy and He Is Us"-Pogo ................ 1528

B. Response to "Trust the Market" ............................................... 1533

1. Agency Theory .................................................................... 1533

2. The Unconscionability Calculus ......................................... 1539

3. Conclusion .......................................................................... 1546

III. GUERILLA TERMS IN CONTEXT: MAKING SENSE OF SITUATION ...... 1547

A. Situationism and the Illusion of Rational Choice ..................... 1548

B. What Is a "Guerilla" Term? .................................................... 1550

C. The Easier It Is to Contract . . . ................................................ 1553

D. A Modest Proposal: Taking Agreement Seriously .................... 1556

CONCLUSION ................................................................................................ 1559

INTRODUCTION

You check your mail to find yet another promotional mailing from a credit card company, just like hundreds of others you have thrown away. But walking toward the trash can to deposit it, the large print on this one catches your eye: "Zero-percent interest on balance transfers." And this is not just another zero-percent-for-three-months offer; this card promises zero percent until the balance is paid off. Figuring that zero is less than the ten percent you are currently paying on your credit card balance, you fill out the application, send it in, and shortly thereafter, your credit card balance transfers to an account on which you pay no interest. So far, so good. While you pay down the balance on the credit card account-you figure you can do it in two years-you also begin using your new card to buy groceries, put gas in your car, and the like. You understand that the interest rate on purchases is not zero; but it's a modest seven percent, still less than the ten percent you had been paying.

All is well, until you get a bill. Then, you see that your monthly payment goes to pay off the transferred balance, not your subsequent purchases. So those purchases you have made will accrue interest at a rate of seven percent until you pay off the entire transferred balance-at least two years-and there is nothing you can do about it. Frustrated, you shove the bill in a desk drawer and forget about it. Three weeks go by; your payment is late. Then you get a reminder from the credit card company. The letter informs you that because "your minimum payment from the preceding billing period remains due and unpaid, the APR for your account will now be billed at eighteen percent." When you applied for this card, you had no idea that payments would be allocated to the transferred balance before current charges would be paid off. You had no idea that one late payment could be so disastrous. These are guerilla terms.

There is a perceived tension between autonomy and efficiency in the case of terms in standardized consumer contracts. Can we rely on notions of autonomy to determine what should be enforced and to what extent? Or should we instead trust the market to assure that the terms that would bind consumers are the terms a competitive environment-a contract-bargain model-would provide? Those questions seem to admit answers based on either autonomy or efficiency, but not an accommodation of the two.

But recent contributions to economic theory may provide the means to reconcile those ostensibly inconsistent objects. 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 properly appreciated 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.

The inquiry pursued here proceeds from four premises: (1) it is irrational to read standard forms like 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 "guerilla terms"- the terms hidden in the boilerplate-because it is not in rational 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 in this Article supports each of those assertions and reconciles our attitude toward "contract doctrine" with the reality of standard form agreements.

Contract doctrine relies on the notion of "bargain"¹and its constituent "agreement."²A contract paradigm based on substantial agreement on something that takes bargain seriously is ill suited to establish the inferred "consensual" assumption of liability. Arguments vindicating the necessity of inferring contract on the basis of even thin objective indicia may have some appeal in a regime where market forces may be expected to result in welfare- maximizing transactions.³But when contract doctrine so corrupted conspires, even unwittingly, with incentives to take unconscientious advantage and also yields ultimately inefficient outcomes, it is appropriate to question the role and operation of doctrine that has strayed too far from the substantial, real bargain and agreement, to the insubstantial, indeed aleatory, inference of consent.

This Article considers how contract doctrine matters (or may matter) and what twenty-first century contracting law and principles can determine for the present and future of contract. I take account of the role of doctrine as well as its substance in light of the tensions imposed on contract doctrine by the proliferation of contracting practices that advances in intellectual property technologies facilitate and even engender. Part I focuses first on the nature of doctrine and how it constrains analysis by channeling the course of inquiry. The premises of this Part support conclusions about the role and operation of doctrine and its application in evolving transactional contexts. Part II then turns to recent contributions to the economic literature that identify "shrouding" as a device, or system of devices, that results in the imposition of "bargains" that autonomists would deem "unfair" and welfare economists would deem inefficient. "Shrouding" is, in fact, facilitated by the more expeditious forms of contracting accommodated by the fit between advances in intellectual property, computerized contracting, and the state of contemporary commercial law and transactional patterns. This Article discovers in shrouding the "guerilla term," a disclosed but yet, in a real sense, undisclosed term that takes advantage of contract fictions and transactional realities to provide form drafters and "sophisticated" consumers the means to exploit the vulnerable by effecting an inevitable, and ultimately pernicious, cross-subsidy.

My conclusions are reinforced, in Part III, by reference to the law and social psychology literature as it relates to contract. A conception of human agency in terms of situation and context-rather than disposition-reveals the mechanism by which guerilla 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 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

Zeidenberg, 86 F.3d 1447, 1453 (7th Cir. 1996), in which Judge Frank Easterbrook argued that judicial interference in competition would hurt consumers. 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. This Article concludes 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, and that only conscientious application of classical contract doctrine can realize the goals of equity and efficiency simultaneously.⁴

I. CLASSICAL CONTRACT DOCTRINE DESCRIBES OVERLAPPING EXCHANGE

OBJECTIVES

Any theory of contract must account for why we would enforce some promises and not others, for not all promises are enforceable at law. Those promises that result from offer, acceptance, and are supported by a bargained- for consideration constitute "contracts" and are enforceable.⁵So there must be something to "bargain" and the "agreement" that captures what it is contract, as distinct from other theories of legal obligation, endeavors to vindicate.⁶

Now the power to contract is crucial and may even be indispensable to the form of cooperative coexistence to which we...