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Full-Text Articles in Law
Contract Production In M&A Markets, Stephen J. Choi, Mitu Gulati, Matthew Jennejohn, Robert E. Scott
Contract Production In M&A Markets, Stephen J. Choi, Mitu Gulati, Matthew Jennejohn, Robert E. Scott
Faculty Scholarship
Contract scholarship has devoted considerable attention to how contract terms are designed to incentivize parties to fulfill their obligations. Less attention has been paid to the production of contracts and the tradeoffs between using boilerplate terms and designing bespoke provisions. In thick markets everyone uses the standard form despite the known drawbacks of boilerplate. But in thinner markets, such as the private deal M&A world, parties trade off costs and benefits of using standard provisions and customizing clauses. This Article reports on a case study of contract production in the M&A markets. We find evidence of an informal information network …
Contractual Evolution, Matthew Jennejohn, Julian Nyarko, Eric L. Talley
Contractual Evolution, Matthew Jennejohn, Julian Nyarko, Eric L. Talley
Faculty Scholarship
Conventional wisdom portrays contracts as static distillations of parties’ shared intent at some discrete point in time. In reality, however, contract terms evolve in response to their environments, including new laws, legal interpretations, and economic shocks. While several legal scholars have offered stylized accounts of this evolutionary process, we still lack a coherent, general theory that broadly captures the dynamics of real-world contracting practice. This paper advances such a theory, in which the evolution of contract terms is a byproduct of several key features, including efficiency concerns, information, and sequential learning by attorneys who negotiate several deals over time. Each …
Don't Go Chasing Waterfalls: Fiduciary Duties In Venture Capital Backed Startups, Sarath Sanga, Eric L. Talley
Don't Go Chasing Waterfalls: Fiduciary Duties In Venture Capital Backed Startups, Sarath Sanga, Eric L. Talley
Faculty Scholarship
Venture-capital-backed startups are often crucibles of conflict between common and preferred shareholders, particularly around exit decisions. Such conflicts are so common, in fact, that they have catalyzed an emergent judicial precedent – the Trados doctrine – that requires boards to prioritize common shareholders' interest and to treat preferred shareholders as contractual claimants. We evaluate the Trados doctrine using a model of startup governance that interacts capital structure, corporate governance, and liability rules. The nature and degree of inter-shareholder conflict turns not only on the relative rights and options of equity participants, but also on a firm's intrinsic value as well …
The Paradox Of Contracting In Markets, Robert E. Scott
The Paradox Of Contracting In Markets, Robert E. Scott
Faculty Scholarship
Traditional economic analysis distinguishes economic organization along three dimensions: firm, contract, and market. This categorization is misleading in any number of respects, but none more so than the assumption that contract and market are separate modes of exchange. In fact, other than barter, which is almost unknown in contemporary commercial transactions, every market transaction is implemented by contract. Thus, in markets the two modes of exchange are inextricably combined. Moreover, the vast majority of contract activity occurs in some form of market, so it does not require much loss of generalization to say that not only are contracts in all …
Contract Design And The Shading Problem, Robert E. Scott
Contract Design And The Shading Problem, Robert E. Scott
Faculty Scholarship
Despite recent advances in our understanding of contracting behavior, economic contract theory has yet to identify the principal causes and effects of contract breach. In this Essay, I argue that opportunism is a primary explanation for why commercial parties deliberately breach their contracts. I develop a novel variation on opportunism that I identify as “shading;” a behavior that more accurately describes the vexing problems courts face in rooting out strategic behavior in contract litigation. I provide some empirical support for the claim that shading behavior is both pervasive in litigation over contract breach and extremely difficult for generalist courts to …
Text And Context: Contract Interpretation As Contract Design, Ronald J. Gilson, Charles F. Sabel, Robert E. Scott
Text And Context: Contract Interpretation As Contract Design, Ronald J. Gilson, Charles F. Sabel, Robert E. Scott
Faculty Scholarship
Contract interpretation remains the most important source of commercial litigation and the most contentious area of contemporary contract doctrine and scholarship. Two polar positions have competed for dominance in contract interpretation. In a textualist regime, generalist courts cannot consider context; in a contextualist regime, they must. Underlying this dispute are contrary assumptions about the prototypical contract each interpretive style addresses. For modern textualists, contracts are bespoke, between legally sophisticated parties who embed as much or as little of the contractual context as they wish in an integrated writing and prefer to protect their choices against judicial interference by an interpretive …
Contracts, Victor P. Goldberg
Contracts, Victor P. Goldberg
Faculty Scholarship
This article focuses on the general problems confronting parties designing a contractual relationship. Contracts concern the future, which is both uncertain and influenced by the behavior of the parties. This presents the parties with a number of problems, the solutions for which are imperfect. Contract doctrine can facilitate their efforts, but it can also be an impediment. Contract design and contract law are discussed.
Anticipating Litigation In Contract Design, Robert E. Scott, George G. Triantis
Anticipating Litigation In Contract Design, Robert E. Scott, George G. Triantis
Faculty Scholarship
Contract theory does not address the question of how parties design contracts under the existing adversarial system, which relies on the parties to establish relevant facts indirectly by the use of evidentiary proxies. In this Article, we advance a theory of contract design in a world of costly litigation. We examine the efficiency of investment at the front end and back end of the contracting process, where we focus on litigation as the back-end stage. In deciding whether to express their obligations in precise or vague terms, contracting parties implicitly allocate costs between the front and back end. When the …