Tuesday Tips: New and Notable Contracts Scholarship on SSRN
Yonathan A. Arbel & David A. Hoffman
Generative Gap Filling
Abstract
Most contract litigation turns on contracts that imperfectly record parties’ bargains. When the parties’ dispute can’t be solved by interpreting the text, courts fill the gap. Scholars have long assumed that the remaining text runs out quickly, and provides thin evidence of the actual deal on the disputed point. On that view, a judge who supplies the missing term must be drawing on something else, from commercial defaults to her own policy preferences. Despite generations of work, courts have no real alternative to such unruly methods. We tested that assumption.
Taking real contracts, we masked a term the parties had negotiated and asked readers to predict what we removed. Lay respondents recovered the hidden term about half the time, twice what chance predicts. Law students and lawyers did marginally better. But large language models, given nothing but the rest of the contract, recovered it nearly nine times in ten.
The deal, in short, testifies to far more of the agreement than the literature assumes, including terms the parties never wrote. A contract, we argue, is like a radio signal from far away. Even when incomplete, enough of the message is carried elsewhere that the missing part can be reconstructed with the right receiver. True gaps are rarer than supposed. Courts can weigh model predictions as ordinary, contestable evidence, and parties can discipline the practice with “Choice of Model” clauses.
David A. Hoffman, Cathy Hwang, Matthew Jennejohn,& Luiza Pedroso
Abstract
We examine M&A dispute resolution by creating and coding a novel dataset of 14,000 deals from 2000 through 2026. Despite political, legal, and technological change over the last quarter century, a steady 8.6% of M&A contracts choose arbitration, meaning that over 90% of M&A contracts still elect to resolve disputes in courts. To explain this surprisingly steady and low use of alternative dispute resolution mechanisms, we turn to original interviews with practicing lawyers. They reveal that sophisticated parties choose courts to maximize the threat of drawn-out discovery process and when worried about enforcing binding judgments. But most surprisingly, parties also turn to courts for what arbitration claims to offer: judges, especially those in Delaware state courts, who feel empowered to enforce the real deal, not just the written one. We translate these findings into a revised account of jurisdictional competition for corporate dispute resolution, one in which forums compete not only on the content of their law but across a bundle of product characteristics.
You can read more about this article on the Contracts’ Empire Substack here.
Jonathan F. Harris
Abstract
Workers across the United States are increasingly bound by employment contracts that courts, policymakers, advocates, and the workers themselves are calling “modern indentured servitude.” These “stay-or-pay” contracts require workers to pay thousands or tens of thousands of dollars if they leave before completing a specified term of employment. They take multiple forms, including Training Repayment Agreement Provisions (TRAPs) that require reimbursement for putative training costs, liquidated damages clauses triggered by early departure, and clauses demanding that the worker pay the employer’s “lost profits.” At least one in thirteen U.S. workers is bound by a stay-or-pay provision, which is frequently woven together with other restrictive covenants to trap a worker in a web of immobility.
The repeated invocation of “indentured servitude” runs through the litigation, regulatory enforcement, and legislative debates surrounding stay-or-pay clauses. The Article thus answers calls to extend Thirteenth Amendment scholarship into the modern labor context by analyzing examples of new stay-or-pay contracts through the free labor tradition. That tradition, though debated in its overall meaning, includes the positive rights to quit and to change employers. A stay-or-pay contract that functionally prevents a worker from quitting and changing jobs violates this free labor principle under the Amendment.
By the mid-nineteenth century, Americans came to view indentured servitude as incompatible with freedom. A similar normative evolution is underway today with stay-or-pay contracts, as there is a broad recognition that the formal right to quit is meaningless when exercising it can lead to financial ruin. Free labor theory combined with the “new indentured servitude” terminology is helping to move courts to deny enforcement of stay-or-pay contracts under trafficking theories, state legislators to ban the contracts ex-ante, and federal agencies to declare the contracts void. Likewise, advocates should consider pursuing Thirteenth Amendment-based challenges to stay-or-pay contracts as a manifestation of constitutional political economy.
Glenn D. West, J. Travis Lasterm, & Mitu Gulati
Abstract
Section 205 of the Restatement (Second) of Contracts declares that every contract imposes a duty on the parties to act in good faith toward and deal fairly with their counterparties. Over the past forty-five years, courts in most states have accepted that declaration as black-letter law, yet have never clearly articulated what the duty actually means. The Restatement drafters envisioned something ambitious: an affirmative covenant that would permit courts to police opportunism by imposing and enforcing community standards of decency, fairness, and reasonableness. Today, that view of the implied covenant is a myth. It persists as legend, but not in the doctrine’s application in major U.S. jurisdictions. Dragged from its cave, the fire-breathing, implied-covenant dragon turns out to be a tamed and useful animal. Courts deploy it for the pedestrian purpose of implying terms necessary to give effect to the contract’s express provisions, and sometimes to constrain extreme examples of opportunism. Drawing on the doctrine’s history, the law of several jurisdictions, and interviews with deal lawyers, this article reveals the dragon for what it is, despite what it may be called.
Peter Wills & Michael Collins
Abstract
Uber Technologies Inc. v. Heller, 2020 SCC 16, was a landmark case. It significantly developed Canadian law in respect of arbitration and contractual unconscionability. In the years since, its reasoning and holdings have been digested by scholars and applied by courts. Enough time has now elapsed to look back and evaluate whether Uber had the impacts that it initially appeared to.
In this article, we review how the courts apply Uber’s holdings in each area of law. Among other matters, we find that Uber’s “brick wall” framework for arbitration has been routinely misunderstood, Uber’s “cognitive asymmetry” category of inequality of bargaining power has been interpreted narrowly, and both Uber’s excision of wrongdoing from the unconscionability doctrine and its embrace of term-level unconscionability have had little effect. We also find that while Justice Brown’s concurring reasons in public policy are often cited, courts often come to the same conclusion on public policy as they do on unconscionability.
This review reveals several themes. First, resistance to change. Lower courts have tended to interpret and apply Uber in a way that makes it less impactful. Second, disagreement. While courts overall have been parsimonious in applying Uber, some appellate authorities have been markedly more generous. That courts have reached different conclusions is not a surprise, in part because there were certain tensions in the reasons in Uber that courts took different paths to resolving. Given these developments, it would be appropriate for the Supreme Court to revisit unconscionability.