Russell B. Korobkin
Contract Boilerplate and Constitutional Public Policy
Abstract
The modern economy is awash in standard form contracts filled with “boilerplate” terms that are drafted by repeat players and routinely accepted by consumers, employees, and businesses without reading or understanding their content. Standard form contracts weaken but do not subvert party autonomy but they do undermine contract efficiency. While American courts attempt to counter the worst excesses of boilerplate with the ad hoc and unpredictable use of the unconscionability doctrine, this paper argues that a more expansive reading of the public policy doctrine – “constitutional public policy” – can provide courts with an additional tool for restricting the enforceability of boilerplate without rejecting it entirely that is more predictable and more in keeping with the institutional competence of courts.
Abraham L. Wickelgren & Ian Ayres
An Economic Analysis of Contractual Conditdions
Abstract
Law and economics has produced a vast literature on the efficient design of contract damages, but almost none on the defensive counterpart to damages: the contractual condition that lets a promisee withhold its own performance when the performance it was promised falls short. This article supplies that missing analysis. Contracts protect entitlements through a mixture of offensive protection-the right to sue for damages or specific performance-and defensive protection-the right to withhold. The observed variation in that mixture is neither random nor merely path dependent. Two variables dominantly explain this: the forfeiture that a defensive withholding can inflict on a relying counterparty, and the verifiability (or enforceability) of breach to a court. We catalog five recurring configurations, ranging from offensive-only to defensive-only protections, and use the forfeiture-verifiability framework to resolve a series of puzzles that resist explanation when damages are studied in isolation: why sellers enjoy a perfect-tender right while buyers of services receive only substantial-performance protection, why some restaurants are paid in advance and others after the meal, why insurers are protected by conditions alone, and why material-adverse-change clauses are drafted as standards rather than rules. A formal numerical model reproduces different offensive and defensive protection configurations as the optimal contract for a different region of the forfeitureverifiability space. Finally, we explain-and at times criticize-the doctrines through which courts limit the enforcement of conditions, arguing that anti-forfeiture, good-faith, burden-allocation, and interpretive rules are best understood as responses to externality and parentalism concerns, and that courts go astray when they excuse a condition without first correctly identifying the purpose it was meant to serve.
Richard H. Frankel
Abstract
Mass arbitration has emerged as the latest battleground in the ongoing tug-of-war between corporations and their consumers and employees regarding binding mandatory arbitration clauses. After businesses succeeded in shielding themselves from liability by using mandatory arbitration clauses to ban class actions, plaintiffs struck back. By filing large numbers of individual arbitrations against a corporate defendant all at once, they have increased their leverage and induced alarmed companies to come to the settlement table. By and large, corporate defendants like mandatory arbitration, but do not like mass arbitration. Recently, defendants have discovered a weapon that allows them to continue to force consumers and employees into arbitration, but to maintain for themselves an escape hatch for mass arbitrations that they would prefer to defend in court. Simply put, they violate the arbitration provider’s rules. This can take several forms, but most commonly, defendants have refused to pay their share of arbitration fees, or they have refused to register their arbitration clause with the arbitration provider. When that happens, the arbitration provider closes the case, and so the plaintiffs no longer can proceed in arbitration, giving the non-complying defendants exactly what they want. Although refusal to follow arbitration provider rules may look like gamesmanship, three recent circuit court decisions have blessed this practice. As a result, even though plaintiffs are required to arbitrate all disputes, defendants are able to unilaterally decide whether a case will proceed in court or in arbitration. This essay argues that allowing defendants to unilaterally back out of arbitration by refusing to comply with arbitration provider rules is unfairly one-sided, imposes significant costs on plaintiffs, and runs contrary to the purpose of the Federal Arbitration Act, which was adopted to prevent parties from strategically avoiding arbitration when they thought they would do better in court.
Ben Fernandez
Abstract
Contract drafting classes should be no different than first and second semester legal writing classes. A first semester legal writing class introduces students to law firm practice. It is not just a writing class; it covers the sources of law, legal research, reading and briefing cases, and legal analysis. A second semester writing class introduces students to litigation practice. It is also not just a writing class; it covers persuasion, civil procedure, and spends a substantial amount of time on oral advocacy. Contract drafting classes should be no different. They should be more like a third semester writing class. They should introduce students to transactional practice the same way a second semester writing class introduces students to litigation practice.
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