Contract Law, Party Sophistication and the New Formalism [File this under: Self-Promotion]

While I took a little break from blogging about the contractfoibles of faded celebrities, I managed to get out a draft of “ContractLaw, Party Sophistication and the New Formalism.”  Coming to atheater near you, courtesy of the Missouri Law Review.  For now, I welcomeyour thoughts and feedback.  Here’s the abstract:

With increasing frequency, courts are mentioning partysophistication as relevant to whether a contract has been formed, whether acontract is enforceable, how the contract should be interpreted, and even, insome instances, the determination of an appropriate remedy.  Sophisticatedparties are held to a different set of rules, grounded in freedom ofcontract.  It is presumed that a sophisticated party was aware of what tobargain for and read (or should have read) and understood (or should haveunderstood) the terms of a written agreement. 

But, just what do courts mean when they call a contractingparty “sophisticated”?

“Sophistication” is a slippery word.  Courts andscholars have not established instructive criteria, and often presume thatparties to a commercial transaction are sophisticated.  Widely cited andhighly regarded works in the area of contract law have stated that theirtheories only apply to sophisticated parties, without a serious attempt toexplain who falls into that category.  Likewise, all too often, courtslabel parties “sophisticated” without any analysis.

Part I of this Article positions the discussion intheoretical context, and describes the significance of party sophistication asa compromise between formalist and realist concerns.  Part II collectsexamples of contexts in which courts have used party sophistication as a toolto organize the world of contracting parties and, with that, the applicablelegal principles.  For sophisticated parties, in answering a wide array ofcontracts questions, courts employ a formalist approach.  Part III beginsdescriptively and addresses the general lack of meaningful assessment of partysophistication.  Drawing upon review of hundreds of cases, Part IIIdetails the attributes common among parties that courts have deemedsophisticated, and begins to draw the contours of a standard forsophistication.

Finally, Part IV presents the central normative claim ofthis Article: courts should take a more deliberate and thoughtful approach inaddressing party sophistication.  Drawing upon the extensive review ofcase law, Part IV provides a definition of sophistication that asks whether thecontracting parties are repeat players in the relevant market for thetransaction.  The proposed standard would require courts to do acontextual, factual assessment of the comparative knowledge and experience ofthe parties as it relates to the nature of the transaction.  As it standsnow, however, in the absence of a meaningful definition of sophistication, courtsare not actually addressing the context of the deal.  Rather, they aresimply reciting well-worn clichés about “sophisticated parties dealing at arms’length.”

You can download the paper here.

[Meredith R. Miller]