Contracts
A Legislative Response to 303 Creative
States should respond to the U.S. Supreme Court’s 303 Creative decision by enacting implied warranties of nondiscrimination. Making nondiscrimination a publicly disclaimable default would facilitate informed consumer choice and mitigate the dignitary harms of point-of-sale discrimination.
The Political Economy of Arbitration Law
The prevalent academic critique of arbitration, the access-to-justice critique, fails to account for arbitration’s influence on how firms organize themselves. This Note offers a new critique of arbitration from a political-economy perspective, arguing that today’s highly restrictive arbitration law greatly benefits firms organized as gig platforms.
When the Sovereign Contracts: Troubling the Public/Private Distinction in International Law
The distinction between a state’s public and private acts is flimsy and unclear. Choosing to see an act as essentially private or public often obscures the other features that complicate that characterization. And selectively recognizing the private aspects of transactions has disproportionately subordinated Global South nations.
A Relational Theory of Data Governance
Data practices of powerful technology companies are aimed primarily at deriving population-level, relational insights, not individual insights specific to a data subject. To apprehend and adjudicate among the supra-individual legal interests that result from data relations necessitates far more public and collective (i.e., democratic) forms of governing data production.
Federalism by Contract
Just as private parties use contracts to facilitate joint projects and nation-states use treaties to organize joint undertakings, our domestic governments use written instruments to formally coordinate their activities. This Article analyzes these distinctive contract-like instruments in which both parties are governments and the mutual objective is public governance.
Reflective Remedies
When the law’s requirements are uncertain, potential remedies for a violation of the law influence how actors behave within that zone of uncertainty. This Note proposes a new class of remedies to handle such problems. It argues that “reflective remedies” encourage socially optimal behavior when certain conditions are met.
Twenty-First-Century Contract Law Is a Law of Agreements, Not Debts: A Response to Lewinsohn
Jed Lewinsohn’s excellent article on consideration offers groundbreaking work on the concept of exchange but errs in seeing the motivational account of consideration as a bad fit with doctrine. I argue that the motivational account provides a more natural justification for both consideration and for contract law as a whole.
Keeping Litigation at Home: The Role of States in Preventing Unjust Choice of Forum
Contractual choice-of-forum clauses pose significant obstacles to individuals’ claims against corporations. But states can and do enact legislation protecting vulnerable parties from unjust forum selection. This Note discusses the breadth of existing state anti-choice-of-forum statutes and argues that states should continue legislating in this area.
Paid on Both Sides: Quid Pro Quo Exchange and the Doctrine of Consideration
The doctrine of consideration in contract is home to the law’s only substantial account of quid pro quo exchange—one that withers under philosophical scrutiny. By fleshing out the idea that exchange involves reciprocal payments, this Article offers both an original theory of exchange and a reconceptualization of consideration.
Contract and (Tribal) Jurisdiction
Consider two commercial contracts. The first requires customers to waive their rights to bring class actions against large businesses in favor of private arbitration. The second requires a reservation leaseholder to adjudicate disputes in tribal court. Both contracts require dispute resolution in fora over which the Supreme Court does not exercise supervisory jurisdiction. Both arbitration and tribal courts are favored by acts of Congress. Both contracts are hotly contested in the Supreme Court. But the arbitration clause contract has been affirmed in a series of recent decisions. The tribal court contract, by contrast, is pending before the Court in Dollar General Corp. v. Mississippi Band of Choctaw Indians. Ironically, while the more conservative Justices signed on to the arbitration clause decisions, these same Justices may be Dollar General’s best bets for escaping tribal jurisdiction. This short Essay details the key arguments in Dollar General and argues that to undo the tribal contract would unnecessarily and unconstitutionally undo the right to contract for Indian nations.
Lawmaking in the Shadow of the Bargain: Contract Procedure as a Second-Best Alternative to Mandatory Arbitration
122 Yale L.J. 1560 (2013). In consumer and employment arbitration, companies have more freedom to choose dispute resolution procedures than they do in courts. Specifically, companies may, through their form contracts, require their customers and employees to waive their rights to present certain forms of evidence, conduct certain forms of discovery, appeal a final judgment, and join a class. Because these procedural terms are attractive to companies, they often require their consumers and employees to bring claims to arbitration rather than to courts. Consequently, consumer and employment disputes appear less frequently on courts’ dockets than they would in the absence of mandatory arbitration, preventing courts from providing important public goods. Many critics have proposed various large-scale legislative reforms that would limit the scope of mandatory arbitration. These proposals, however, have largely not gained political traction. In the absence of large-scale legislative reform, this Note considers whether enforcing more procedural options in courts may be the second-best alternative to mandatory arbitration. Permitting parties the same procedural options in courts that are already available in arbitration may influence companies to allow their consumer and employment disputes to be brought in courts, thus allowing courts to play their role in generating important public goods.
Regulating Opt-Out: An Economic Theory of Altering Rules
121 Yale L.J. 2032 (2012). Whenever a rule is contractible, the law must establish separate rules governing how private parties can contract around the default legal treatment. To date, contract theorists have not developed satisfying theories for how to set “altering rules,” the rules that establish the necessary and sufficient conditions for displacing a default. This Article argues that when setting altering rules, efficiency-minded lawmakers should consider the costs of altering, the costs of various kinds of error, and the possibility that altering can impose negative externalities on others. There are two broad reasons for structuring altering rules that deviate from merely minimizing the transaction cost of altering. First, the Article develops conditions in which minimizing the costs of party error (especially nondrafter error) and third-party error (especially judicial error) will be paramount. It proposes a variety of altering interventions—including “train-and-test” altering rules, “clarity-requiring” altering rules, “password” altering rules, and “thought-requiring” altering rules—that might be deployed to reduce altering error. Second, when externality concerns or paternalistic concerns to protect the contractors themselves are insufficient to justify a full-blown mandatory rule, lawmakers might at times usefully impose “impeding” altering rules, which deter subsets of contractors from contracting for legally disfavored provisions. Impeding altering rules produce an intermediate category of “quasimandatory” or “sticky default” rules, which manage but do not eliminate externalities and paternalism concerns. These two deviations from transaction-cost minimization can often be usefully complemented by a third category of altering rules—what this Article calls “altering penalties”—which penalize one or both contractors who utilize disfavored altering methods. Altering penalties can channel contractors’ altering efforts toward means that better reduce error or better control externalities or paternalism. More explicitly theorizing altering rules as a distinct category of law can make visible legal issues that have largely gone unnoticed and lead toward the development of more defensible choices about how best to regulate opt-out.
Off-Contract Harms: The Real Effect of Liberal Rescission Rights on Contract Price
Introduction In their recent article in The Yale Law Journal, Professors Richard R.W. Brooks and Alexander Stremitzer make the case for a liberal allowance of rescission and restitution—an “off the contract” remedy that allows a party to a contract to rescind following breach by a counterparty and to receive back the contract price. This Essay argues that Brooks and Stremitzer’s recommendations are based on an incomplete analysis of the effects of rescission rights on the marketplace and are ultimately misplaced. Brooks and Stremitzer argue that liberal rescission rights will lead to two socially desirable effects: “First, foreseeing the possibility of rescission by counterparties, promisors will invest to enhance the quality of performance . . . . Second, promisors can also make rescission less desirable for counterparties by reducing the price that they charge, implying a lower, less attractive remedy in restitution.” The threat of rescission can thus lead to higher investments in quality and lower prices. This Essay challenges the second of these claims. Once we broaden Brooks and Stremitzer’s analysis of a single buyer-seller relationship to include multiple buyers, the effect of liberal rescission rights on price might be the opposite of what they predict for two principal reasons. First, promisors will not be incentivized to reduce their prices because lower prices do not lead to a drop in the number of counterparties that opt for rescission. This is because a drop in prices allows low-value buyers to enter the market—an effect Brooks and Stremitzer critically neglect. These buyers have a relatively high probability of opting for rescission, and their entrance can therefore increase the overall number of returns that a seller faces. Second, liberal rescission rights, because they serve a valuable insurance function for the counterparty and are costly to the seller, might actually lead to higher prices. I do not contend that liberal rescission rights will never induce sellers to lower their prices but rather that, under many circumstances, they will either have no effect on sellers’ incentives or may actually induce sellers to raise their prices. Without any evidence as to the likelihood of the differing effects on price, Brooks and Stremitzer cannot enlist the price effect of rescission as an argument in favor of a regime that provides for a more liberal allowance of rescission rights.
Remedies On and Off Contract
120 Yale L.J. 690 (2011). Liberal allowance of rescission followed by restitution has, for centuries, unsettled legal authorities who fear it as a threat to commercial order or other normative values. Responding to these fears, authorities have limited the ease with which rescission may be elected. Their responses, however, are often excessive and based on misunderstandings of the remedy’s effects. Rescission, followed by restitution, may in fact promote contracting by allowing parties to create efficient incentives. Concern about the stability of contracting is not entirely unfounded, but the problem is not primarily due to the ease of rescission following breach; rather, the problem concerns the remedy that follows rescission. This Article presents an argument for liberal rescission followed by limited ensuing remedies. Modern reforms and proposals seem to embrace the opposite route, restricting access to rescission while, at times, allowing for generous ensuing remedies. These reforms and proposals, we show, are the real threat to contractual stability.
Contract, Race, and Freedom of Labor in the Constitutional Law of "Involuntary Servitude"
119 Yale L.J. 1474 (2010). The Supreme Court has yet to adopt and apply a standard for assessing labor rights claims under the Involuntary Servitude Clause. This Article suggests that one may be found in the leading decision of Pollock v. Williams (1944), which contains the Court’s most thorough discussion of the interpretive issues. Under Pollock, a claimed right should be protected if it is necessary to provide workers with the “power below” and employers the “incentive above” to prevent “a harsh overlordship or unwholesome conditions of work.” Although this is not the only conceivable standard, it does fit well with the text, history, and case law of the Amendment. The absence of any racial element, which might appear dishonest in light of the fact that most of the leading cases involved workers of color, nevertheless corresponds to the Amendment’s original meaning and appears to have important advantages from a doctrinal point of view. The Article discusses the legal and philosophical justifications of various labor rights in relation to the Pollock standard, including the right to quit, the right to change employers, the right to name the wages for which one is willing to work, and the right to strike.
Regulating in the Shadow of the U.C.C.: How Courts Should Interpret State Consumer Protection Laws
119 Yale L.J. 1329 (2010).
Contract Interpretation Redux
119 Yale L.J. 926 (2010). Contract interpretation remains the largest single source of contract litigation between business firms. In part this is because contract interpretation issues are difficult, but it also reflects a deep divide between textualist and contextualist theories of interpretation. While a strong majority of U.S. courts continue to follow the traditional, “formalist” approach to contract interpretation, some courts and most commentators prefer the “contextualist” interpretive principles that are reflected in the Uniform Commercial Code and the Second Restatement. In 2003, we published an article that set out a formalist theory of contract interpretation to govern agreements between business firms. We argued that, although accurate judicial interpretations are desirable, accurate interpretations are costly for parties and courts to obtain. Thus, any socially desirable interpretive rule would trade off accuracy against contract-writing and adjudication cost. This tradeoff implies that risk neutral business parties will commonly prefer judicial interpretations to be made on a limited evidentiary base, the most important element of which is the contract itself. But importantly, we also argued that commercial parties’ preferences along this dimension will be heterogeneous. Thus, any interpretation rules the state adopts should be defaults and the state should defer to the expressed preferences of particular parties regarding interpretation. This Review clarifies and extends these arguments, which have prompted a number of antiformalist responses. We respond to our critics and summarize empirical data that support our theory. Although much academic commentary suggests otherwise, both the available evidence and prevailing judicial practice support the claim that sophisticated parties prefer textualist interpretation. Sophisticated commercial parties incur costs to cast obligations expressly in written and unconditional forms to permit a party to stand on its rights under the written contract, to improve party incentives to invest in the deal, and to reduce litigation costs. Contextualist courts and commentators prefer to withdraw from parties the ability to use these instruments for contract design. The contextualists, however, cannot justify rules that so significantly restrict contractual freedom in the name of contractual freedom.
Strategic Vagueness in Contract Design: The Case of Corporate Acquisitions
119 Yale L.J. 848 (2010). The unprecedented and unanticipated economic and financial shocks of the past couple of years have led parties to look for contractual escapes from deals. As the current crisis works its way through our economic system, however, attention will be shifted from the collapsed deals to the design of future transactions. The vague language of past agreements has fueled disputes and threatened costly and uncertain litigation. Should future parties, in corporate acquisition deals and other commercial contracts, inject greater precision in their agreements? There are many proponents of this advice. However, we lack a theoretical framework for setting out the costs and benefits of vague and precise provisions. In this Article, we provide such a framework in order to improve awareness of the strategic use of vagueness in contracting. The conventional rules-standards analysis suggests that vague terms are justified when the expected larger litigation costs in enforcing standards are outweighed by the lower costs of drafting. In acquisition agreements, this would suggest that vague MAC clauses yield benefits only by reducing front-end drafting costs. Yet, some proxies for material adverse change, such as quantitative thresholds in stock price, revenues, or accounting earnings, are easy to draft and can be verified at low cost. They are usually noisy proxies, however, and therefore are not perfect. We demonstrate that litigation costs, when properly harnessed, can in fact improve contracting by operating as a screen on the seller’s decision to sue. We review three possible goals of MAC clauses: (a) to provide efficient incentives for investment and precautions against future contingencies by the seller between the time of the agreement and closing; (b) to allow the seller to better signal its private information to the acquirer at the time of contracting; and (c) to enable the seller to better signal private information at the time of closing, in order to promote ex post efficiency in terminating or executing the acquisition. We show that, in achieving these goals, vague provisions may work better than more precise and less costly proxies.
