ContractsProf Blog

Editor: Jeremy Telman
Oklahoma City University
School of Law

Wednesday, May 22, 2024

(Much Belated!) Tuesday Top Ten - Contracts & Commercial Law Top SSRN Downloads for May 22, 2024

Yes, it's actually Wednesday, and yes, we missed the charts for last week. Apologies to ContractsProf Blog readership as I've been traveling and dealing with some family health issues, but today we take steps toward setting things right. Let's check out what is going on at SSRN in our favorite subject areas.

Top-10 Block Letters

Top Downloads For:

Contracts & Commercial Law eJournal

Recent Top Papers (60 days)

As of: 23 Mar 2024 - 22 May 2024
Rank Paper Downloads
1.

Governing AI Agents

University of Toronto
577
2.

Online behavioural advertising, consumer empowerment and fair competition: Are the DSA transparency obligations the right answer?

University of Amsterdam - Institute for Information Law (IViR), Institute for Information Law (IViR), University of Amsterdam, University of Amsterdam, University of Amsterdam, University of Amsterdam and University of Amsterdam
414
3.

The New AI: The Legal and Ethical Implications of ChatGPT and Other Emerging Technologies (Symposium Foreword)

Fordham University School of Law and Fordham University School of Law
165
4.

Time to Call Time on the Quistclose Trust

University of Oxford
162
5.

Delimiting "Agreements" for International Law

Temple University - James E. Beasley School of Law
144
6.

Introduction to the Law of Secured Transactions

Angelo State University - Business Law
127
7.

Discussion Draft: Principles for AI in Contracting (Version 2.1)

University of Vienna - Faculty of Law
121
8.

The Ethical Limits of Markets: Market Inalienability

University of Virginia School of Law
85
9.

Wholesale Price Discrimination and Contract Unobservability

International Institute of Finance, School of Management, University of Science and Technology of China, University of Science and Technology of China - School of Management and University of Florida - Warrington College of Business Administration
84
10.

Abuse of Contract: Boilerplate Erasure of Consumer Counterparty Rights

University of Missouri School of Law
68

Top Downloads For:

Law & Society: Private Law - Contracts eJournal

Recent Top Papers (60 days)

As of: 23 Mar 2024 - 22 May 2024
Rank Paper Downloads
1.

Pay to Plead: Finding Unfairness and Abusive Practices in California Debt Collection Cases

University of Illinois Chicago School of Law and University of California, Irvine School of Law
259
2.

The Ethical Limits of Markets: Market Inalienability

University of Virginia School of Law
85
3.

Consumer Protection and the Illusory Promise of the Unconscionability Defense

Fordham University School of Law and University of Denver Sturm College of Law
78
4.

Who’s Your Debtor? Group Insolvency and the Curious Case of Celsius

Leiden University - Hazelhoff Centre for Financial Law and the Department of Company Law
67
5.

Reconciliation at the Border of Public and Private Law: Rethinking Contract Principles in the Context of Impact and Benefit Agreements

Conway Baxter Wilson LLP
65
6.

Exploring Blockchain-Based Alternative Dispute Resolution: Limitations of Traditional Methods and Prospects for Further Research

CNRS-University of Paris 2
58
7.

Introduction for The Arbitration Conversation: Insights and Wisdom from Experts in the Field

Ohio State University (OSU) - Michael E. Moritz College of Law
56
8.

The Private Litigation Impact of New York's Green Amendment

Independent, Independent, Sabin Center for Climate Change Law at Columbia Law School and Columbia University - Sabin Center for Climate Change Law
46
9.

Forced Arbitration in the Fortune 500

University of California, Davis - School of Law
35
10.

Strategically Restated Defaults

University of Idaho College of Law
32

May 22, 2024 in Recent Scholarship | Permalink

Monday, May 13, 2024

Teaching Assistants: Victor Goldberg on Consequential Damages in the UK

Rethinking This is the twelfth in our series of posts on Victor Goldberg's second volume of collected essays on contracts law, Rethinking the Law of Contract Damages (RLCD).  Links to previous posts on the first volume, Rethinking Contract Law and Contract Design (RCL), can be found here.  Today's post covers the eleventh chapter of RLCD, in which Professor Goldberg addresses consequential damages and exclusion clauses under UK law.

Immanuel Kant famously observed that two things fill the mind with ever-increasing wonder the more we contemplate them: the starry heavens above and the moral law within.  As far as I know, Kant never addressed consequential damages, but the more one contemplates them, the more the mind recoils in dread and confusion.

And so Professor Goldberg begins with a quotation from McGregor on Damages, in which the author reflects on court treatments of exclusions of consequential damages and concludes that the entire approach "is to be deprecated."  Professor Goldberg narrates the course of UK jurisprudence on consequential damages exclusion clauses.  That narrative seems to be heading back to the simplicity of McGregor's approach: the normal loss in contract is usually the contract-market differential; the rest is consequential damages. (RLCD, 199)

This material takes us back to themes we reviewed in our review of the Alien Vomit piece and in a discussion of a recent episode of the Unpacking Contract Law podcast.  As we noted in the latter post, the Australians have nicely summarized the UK approach exclusions: "the poms have got it wrong."

Like the podcast, Professor Goldberg speaks of Hadley v. Baxandale's two "limbs," the first of which is direct damages and the second consists of damages recoverable only because they were in the contemplation of the parties at the time of contracting.  It seems that courts have often read exclusion clauses as relating to categories of damages in the first limb (i.e. direct damages) when they really belonged  in the second limb (consequential). Courts have thus been reluctant to uphold such exclusions. (RLCD, 200-01) Professor Goldberg takes us through the history of court treatment of such exclusion clauses in three periods.

Early Cases

In Millar's Machinery v. David Way and Son, the court awarded direct damages and properly excluded consequential damages which had been contractually excluded. The case seems straightforward but is cited as authority for narrow readings of exclusions of consequential damages. (RCLD 201-02) In Saint Line Ltd. v. Richardsons, Westgarth, & Co., a case about a properly-rejected vessel, the court allowed the arbiter to determine damages, including lost profits when the vessel was not useable, expenses for wages, and superintendents' fees, notwithstanding a contractual exclusion of consequential damages. (RCLD 202-03) Finally, in Croudace Construction v. Cawoods Concrete Products, Croudace sued claiming various losses resulting from Cawoods' delayed delivery, notwithstanding an exclusion of consequential damages.  Both the trial and appellate court found, citing the Millar's case, that the damages sought were all direct and thus outside the scope of the exclusion. The courts explained this result, rather hard to square with parties' language or their reasonable expectations, based on the assumption that "commercial men" would not want to limit their liability. (RCLD, 203-05)

Turn of the Century Cases

Deepak Fertilisers v. Davy McKie involved the explosion of a methanol plant in India. Deepak sought ₤100 million in damages, including lost output, fixed costs, and overhead. There was a contractual exclusion of indirect or consequential damages. The trial court (per Judge Rix) excluded fixed costs and overhead, finding them indirect and thus excluded under the contractual provision.  The Court of Appeal reversed, finding the losses related to fixed costs and overhead to be "direct and natural," citing Croudace.  Lost profits were excluded because they were too remote. (RLCD, 205-06)

Victor GoldbergJudge Rix confronted the issue again in BHP Petroleum v. British Steel.  In that case, seller delivered ₤3 million of steel to a consortium of oil and gas companies for the construction of a pipeline.  When the pipeline failed, the consortium sued seller for ₤200 million, including lost profits. If Judge Rix could have just followed his instincts, he would have held that most of what was sought was unrecoverable due to a contractual exclusion of consequential damages.  Because the Court of Appeals' judgment in McKie foreclosed that correct application of the law, Judge Rix found that the matter turned on the parties' knowledge of the potential for special damages at the time the contract was formed.  The Court of Appeals approved of Judge Rix's disposition, while noting what a hardship it would be for seller if it had to assume the risk of liability so far exceeding the value of the contract. (RLCD 206-11) Indeed. That is why parties negotiate for exclusions of consequential damages.

In British Sugar Plc v. NEI Power Projects, British Sugar sought ₤5 million in damages that arose largely from production delays and lost profits caused by defects in  electric equipment that seller provided.  The court allowed the claim, notwithstanding a clause limiting recovery for consequential damages to the value of the contract.  The court found that the losses were direct, flowing naturally from the breach. (RLCD 211-12).  Hotel Services Ltd v. Hilton Int'l Hotels is similar.  The court allowed recovery of consequential damages, notwithstanding an exclusion, on the ground that "consequent loss of profit" was not consequential. (RLCD 212-13).

I wish I were making this up.

The Twenty-First Century

The first few cases that Professor Goldberg discusses seem pretty similar to the older cases. (RLCD 213-18) In two case, the courts opine that consequential damages must be recoverable.  Otherwise the non-breaching party would have no remedy for breach. Professor Goldberg shows why this is incorrect at least with respect to the first case. (RLCD 216-18)

Professor Goldberg next discusses a few cases that seem to come out right, but do not really address the confusion of direct and consequential damages. Both cases involved direct damages not subject to a contractual exclusion of consequential damages. (RLCD 218-20) The tide really begins to turn with Fujitsu Services v. IBM UK, in which the court gave effect to a contractual exclusion of consequential damages, including lost profits. (RLCD, 221-22)

But the more dramatic change comes with Transocean Drilling v. Providence Resources, in which the court rejected the "two limbs" approach to questions of exclusion of damages.  Rather the court distinguished between "loss of bargain damages" -- the contract/market differential, which are direct, and lost profits. (RLCD 222-24) Star Polis v. HHIC Phil then might go too far in the other direction.  A contract provided for an exclusive repair and replace remedy, and the court enforced that, but it neglected to consider that direct damages arise when a replacement is inferior to what was bargained for. (RLCD 224-25)

Professor Goldberg concludes with a short rumination on the fate of exclusion clauses in the U.S. and the UK (RLCD 225-27) It must be difficult for attorneys negotiating contracts involving UK and U.S. parties to draft the exclusion contracts. We are two legal traditions separated by a common language.

Below are links to previous posts on RLCD and the first post links to post posts on RCL:

Teaching Assistants: Victor Goldberg, Volume II, An Introduction
Teaching Assistants: Victor Goldberg on Valuation of the Contract as an Asset
Teaching Assistants: Victor Goldberg on The Golden Victory
Teaching Assistants: Victor Goldberg on Lost (Volume) in America
Teaching Assistants: Victor Goldberg on Lost Volume in the UK
Teaching Assistants: Victor Goldberg on Mitigation
Teaching Assistants: Victor Goldberg on the Middleman's Damages
Teaching Assistants: Victor Goldberg on Sub-Sales in the UK
Teaching Assistants: Victor Goldberg on Jacob and Youngs v. Kent
Teaching Assistants: Victor Goldberg on Victoria Laundry
Teaching Assistants: Victor Goldberg on Consequential Damages in the U.S.

May 13, 2024 in Books, Contract Profs, Famous Cases, Recent Scholarship | Permalink | Comments (0)

Wednesday, May 8, 2024

Teaching Assistants: Choi, Gulati, & Scott on Commercial Boilerplate & Landmines

Stephen ChoiStephen Choi (left), Mitu Gulati (below right), and Robert Scott (below left) have collaborated on Commercial Boilerplate: A Review and Research Agenda, which you can find on SSRN.  They aren't kidding about the research agenda thing, because they also have a book in the works about commercial boilerplate.  Mitu shared a draft of the introduction, and so I can offer some surmises in this post on the connections between the research agenda and the book.  The working title is The Contract Production Paradox.

Their scholarship is unique and exciting because, while a lot of us contracts scholars have been concerned with boilerplate contracting, we have focused on asymmetrical contracts in the consumer or employment context in which the dominant party dictates boilerplate terms to the counterparty, who accepts those terms with little or no ability to negotiate.  The Authors focus on commercial boilerplate, and their research turns up all sorts of surprises.

Mitu GulatiIt turns out that boilerplate is ubiquitous in large commercial transactions involving sophisticated parties. Here too, the lawyers do not review the boilerplate, nor do they negotiate over boilerplate terms. Why? Because they are in a hurry. The transactions are complex; the assets being traded may fluctuate in value, and like most of us, they either assume that the boilerplate terms are good enough or the costs of careful negotiation outweigh the litigation risk that perhaps-faulty boilerplate terms might entail. 

Their literature review covers the early discovery in the law and economics literature that even sub-optimal boilerplate terms could be sticky; that is, attorneys continued to use the terms, notwithstanding their faults.  But early scholarship assume that the terms that survived tended to approach optimality.  In complex loan transactions, standard terms meant that one could trade loan instruments quickly without reviewing terms, confident that the effect of the boilerplate provisions was well-understood and that their value had been priced.

A second generation of scholarship discovered that the reality departed from the model.  Sticky terms were used despite their sub-optimality and they were not in fact well-understood and could in fact be challenged by opportunistic litigants.  These provisions came to be known as "black holes," presumably because their meaning was impenetrable and yet they could not be easily removed without causing the surrounding deal structure to collapse.  But it gets worse.  The standard language turns out not to be standard after all, and so one cannot even assume that the standard boilerplate provisions, regardless of their opacity, have some accepted meaning that can be priced.

Robert_scott_0The Authors then turn their attention to the process whereby the boilerplate is made, and this part of the Review and Research Agenda introduces the main theme of the Authors' forthcoming book on commercial boilerplate.  Inattention to the mode of contract production transforms boilerplate "black holes" into "landmines." Transactional lawyers assume that boilerplate clauses are both fixed and well-understood. They are neither. And as slight changes slip into common boilerplate provisions, opportunistic lawyers can pounce.   

Still, the Authors note that there will always be a trade-off in contract design between the high production costs associated with bespoke contract drafting and the accidental inefficiencies associated with adopting boilerplate provisions, which might not be the right fit for the transaction (see related work on "alien vomit") or might be corrupted in ways that are not easily detectible in the hurly-burly of transactions negotiated under time pressure.  The more common the transaction, the more likely it is to be larded with landmine boilerplate provisions. 

The authors describe the process though which such landmines come into being in a context they have studied carefully, sovereign bond contracts.  They illustrate the effects of such landmines through a discussion of the impact of a misunderstood pari passu clause, a landmine triggered in 2011 in connection with the Argentinian debt crisis.  They have created a typology of landmines: historical holdovers, random errors, subversive accretions, and obsolete provisions.  They conclude with a list of eight emerging areas of research, followed by a dozen pages of references that will no doubt serve as a mandatory reading list for other scholars in this area.

It looks like the related book project will focus on the mechanics of commercial contract production.  The Authors argue that we need to improve our understanding of the tradeoffs between efficiency and tailored contract drafting in order to understand the provenance of boilerplate terms.  They illustrate problems with commercial boilerplate that have arisen in sovereign debt instruments.  They then provide evidence that similar landmines exist in other types of contracts dependent on commercial boilerplate.  The review and research agenda mentions interpretation issues that can arise in connection with boilerplate terms.  Knowing how a landmine got into a contract might indeed be important to a court looking beyond the text to the intentions of the parties. They return to that subject in the proposed book's concluding chapter.

Hoffman_David_Feb2023_Resized_v3I will note for the record to David Hoffman (right) has also posted about this article on Jotwell, and I wanted to complete my own assessment before reading his.  Having turned my attention to Professor Hoffman's piece after completing my own, I attach the following addendum.  You really should have read Professor Hoffman's take on this first.

In this post, I have refrained from commenting on the possible impact of AI on commercial boilerplate, assuming that one of the authors of Generative Interpretation would take up that challenge. Mere mortal that I am, I can only imagine that AI tools already at hand could now be deployed in a manner consistent with the Authors' work.  Transactional lawyers assume that commercial boilerplate is unchanging and and unchallenged.  It is neither.  Armed with that knowledge, they can use AI tools to efficiently police their boilerplate provisions for variations or even create a genealogy of the provisions and thus perhaps cull the alien vomit.  Following Hoffman and Arbel's work, one could also presumably use generative AI to predict the likely interpretation of boilerplate terms.

May 8, 2024 in Contract Profs, Recent Scholarship, True Contracts, Weblogs | Permalink | Comments (0)

Tuesday, May 7, 2024

Tuesday Top Ten - Contracts & Commercial Law Top SSRN Downloads for May 7, 2024

Top Ten Bulb Vortex

 

Top Downloads For:

Contracts & Commercial Law eJournal

Recent Top Papers (60 days)

As of: 08 Mar 2024 - 07 May 2024
Rank Paper Downloads
1.

Online behavioural advertising, consumer empowerment and fair competition: Are the DSA transparency obligations the right answer?

University of Amsterdam - Institute for Information Law (IViR), Institute for Information Law (IViR), University of Amsterdam, University of Amsterdam, University of Amsterdam, University of Amsterdam and University of Amsterdam
408
2.

Caveat Lector: Large Language Models in Legal Practice

The Chinese University of Hong Kong (CUHK) - Faculty of Law
326
3.

Oscar Law

Rutgers Law School and Rutgers School of Law, Students
148
4.

The New AI: The Legal and Ethical Implications of ChatGPT and Other Emerging Technologies (Symposium Foreword)

Fordham University School of Law and Fordham University School of Law
143
5.

Introduction to the Law of Secured Transactions

Angelo State University - Business Law
126
6.

Delimiting "Agreements" for International Law

Temple University - James E. Beasley School of Law
113
7.

Discussion Draft: Principles for AI in Contracting (Version 2.1)

University of Vienna - Faculty of Law
111
8.

Financial Hardship and Complaints-Handling in the Buy-Now Pay-Later Industry: A Recent Empirical Study

University of Melbourne, University of Melbourne - Melbourne Law School, Melbourne Law School - University of Melbourne and University of Melbourne - Law School
98
9.

Time to Call Time on the Quistclose Trust

University of Oxford
79
10.

The Ethical Limits of Markets: Market Inalienability

University of Virginia School of Law
78

 

Top Downloads For:

Law & Society: Private Law - Contracts eJournal

Recent Top Papers (60 days)

As of: 08 Mar 2024 - 07 May 2024
Rank Paper Downloads
1.

Pay to Plead: Finding Unfairness and Abusive Practices in California Debt Collection Cases

University of Illinois Chicago School of Law and University of California, Irvine School of Law
253
2.

NIL Enforcement Preemption

Recreation and Sport Management Program
113
3.

The Ethical Limits of Markets: Market Inalienability

University of Virginia School of Law
78
4.

Consumer Protection and the Illusory Promise of the Unconscionability Defense

Fordham University School of Law and University of Denver Sturm College of Law
66
5.

Reconciliation at the Border of Public and Private Law: Rethinking Contract Principles in the Context of Impact and Benefit Agreements

Conway Baxter Wilson LLP
63
6.

Exploring Blockchain-Based Alternative Dispute Resolution: Limitations of Traditional Methods and Prospects for Further Research

CNRS-University of Paris 2
56
7.

Who’s Your Debtor? Group Insolvency and the Curious Case of Celsius

Leiden University - Hazelhoff Centre for Financial Law and the Department of Company Law
52
8.

Introduction for The Arbitration Conversation: Insights and Wisdom from Experts in the Field

Ohio State University (OSU) - Michael E. Moritz College of Law
51
9.

The Private Litigation Impact of New York's Green Amendment

Independent, Independent, Sabin Center for Climate Change Law at Columbia Law School and Columbia University - Sabin Center for Climate Change Law
42
10.

Forced Arbitration in the Fortune 500

University of California, Davis - School of Law
34

May 7, 2024 in Recent Scholarship | Permalink

Tuesday, April 30, 2024

Tuesday Top Ten - Contracts & Commercial Law Top SSRN Downloads for April 30, 2024

Top-ten-star-neon

Top Downloads For:

Contracts & Commercial Law eJournal

Recent Top Papers (60 days)

As of: 01 Mar 2024 - 30 Apr 2024
Rank Paper Downloads
1.

Online behavioural advertising, consumer empowerment and fair competition: Are the DSA transparency obligations the right answer?

University of Amsterdam - Institute for Information Law (IViR), Institute for Information Law (IViR), University of Amsterdam, University of Amsterdam, University of Amsterdam, University of Amsterdam and University of Amsterdam
392
2.

Caveat Lector: Large Language Models in Legal Practice

The Chinese University of Hong Kong (CUHK) - Faculty of Law
303
3.

Reputation Reconsidered

University of Richmond School of Law
215
4.

Oscar Law

Rutgers Law School and Rutgers School of Law, Students
142
5.

Introduction to the Law of Secured Transactions

Angelo State University - Business Law
126
6.

From Smart Legal Contracts to Contracts on Blockchain: An Empirical Investigation

Roma Tre University, Rome, Italy and Roma Tre University, Rome, Italy
124
7.

The New AI: The Legal and Ethical Implications of ChatGPT and Other Emerging Technologies (Symposium Foreword)

Fordham University School of Law and Fordham Law School
118
8.

Discussion Draft: Principles for AI in Contracting (Version 2.1)

University of Vienna - Faculty of Law
106
9.

Financial Hardship and Complaints-Handling in the Buy-Now Pay-Later Industry: A Recent Empirical Study

University of Melbourne, University of Melbourne - Melbourne Law School, Melbourne Law School - University of Melbourne and University of Melbourne - Law School
93
10.

Filling the Void: How E.U. Privacy Law Spills Over to the U.S.

New York University School of Law and New York University School of Law
82

 

Top Downloads For:

Law & Society: Private Law - Contracts eJournal

Recent Top Papers (60 days)

As of: 01 Mar 2024 - 30 Apr 2024
Rank Paper Downloads
1.

Pay to Plead: Finding Unfairness and Abusive Practices in California Debt Collection Cases

University of Illinois Chicago School of Law and University of California, Irvine School of Law
246
2.

Reputation Reconsidered

University of Richmond School of Law
215
3.

NIL Enforcement Preemption

Recreation and Sport Management Program
106
4.

Filling the Void: How E.U. Privacy Law Spills Over to the U.S.

New York University School of Law and New York University School of Law
82
5.

The Ethical Limits of Markets: Market Inalienability

University of Virginia School of Law
73
6.

Reconciliation at the Border of Public and Private Law: Rethinking Contract Principles in the Context of Impact and Benefit Agreements

Conway Baxter Wilson LLP
62
7.

Consumer Protection and the Illusory Promise of the Unconscionability Defense

Fordham University School of Law and University of Denver Sturm College of Law
60
8.

Rights Mediation: Contracts Law and the First Amendment

Oklahoma City University School of Law
59
9.

Exploring Blockchain-Based Alternative Dispute Resolution: Limitations of Traditional Methods and Prospects for Further Research

CNRS-University of Paris 2
52
10.

Introduction for The Arbitration Conversation: Insights and Wisdom from Experts in the Field

Ohio State University (OSU) - Michael E. Moritz College of Law
47

April 30, 2024 in Recent Scholarship | Permalink

Tuesday, April 23, 2024

Tuesday Top Ten - Contracts & Commercial Law Top SSRN Downloads for April 23, 2024

Top-10-tuesday-fireworks

Top Downloads For:

Contracts & Commercial Law eJournal

Recent Top Papers (60 days)

As of: 23 Feb 2024 - 23 Apr 2024
Rank Paper Downloads
1.

Online behavioural advertising, consumer empowerment and fair competition: Are the DSA transparency obligations the right answer?

University of Amsterdam - Institute for Information Law (IViR), Institute for Information Law (IViR), University of Amsterdam, University of Amsterdam, University of Amsterdam, University of Amsterdam and University of Amsterdam
371
2.

Caveat Lector: Large Language Models in Legal Practice

The Chinese University of Hong Kong (CUHK) - Faculty of Law
280
3.

Reputation Reconsidered

University of Richmond School of Law
214
4.

Oscar Law

Rutgers Law School and Rutgers School of Law, Students
142
5.

COVID-19 Risk Factors and Boilerplate Disclosure

New York University School of Law, University of Virginia School of Law, New York University School of Law and University of Michigan Law School
127
6.

Introduction to the Law of Secured Transactions

Angelo State University - Business Law
124
7.

From Smart Legal Contracts to Contracts on Blockchain: An Empirical Investigation

Roma Tre University, Rome, Italy and Roma Tre University, Rome, Italy
118
8.

Discussion Draft: Principles for AI in Contracting (Version 2.1)

University of Vienna - Faculty of Law
99
9.

The New AI: The Legal and Ethical Implications of ChatGPT and Other Emerging Technologies (Symposium Foreword)

Fordham University School of Law and Fordham Law School
98
10.

Financial Hardship and Complaints-Handling in the Buy-Now Pay-Later Industry: A Recent Empirical Study

University of Melbourne, University of Melbourne - Melbourne Law School, Melbourne Law School - University of Melbourne and University of Melbourne - Law School
90

 

Top Downloads For:

Law & Society: Private Law - Contracts eJournal

Recent Top Papers (60 days)

As of: 23 Feb 2024 - 23 Apr 2024
Rank Paper Downloads
1.

Pay to Plead: Finding Unfairness and Abusive Practices in California Debt Collection Cases

University of Illinois Chicago School of Law and University of California, Irvine School of Law
224
2.

Reputation Reconsidered

University of Richmond School of Law
214
3.

Classical Liberalism and Corporate Law

University of Iowa College of Law
167
4.

NIL Enforcement Preemption

Recreation and Sport Management Program
103
5.

Filling the Void: How E.U. Privacy Law Spills Over to the U.S.

New York University School of Law and New York University School of Law
59
6.

Rights Mediation: Contracts Law and the First Amendment

Oklahoma City University School of Law
59
7.

Reconciliation at the Border of Public and Private Law: Rethinking Contract Principles in the Context of Impact and Benefit Agreements

Conway Baxter Wilson LLP
57
8.

The Ethical Limits of Markets: Market Inalienability

University of Virginia School of Law
53
9.

Empirical Study: Tax-related Measures in Investor-State Arbitration

WilmerHale LLC, The British Institute of International and Comparative Law (BIICL), WilmerHale LLC and WilmerHale LLC
53
10.

Consumer Protection and the Illusory Promise of the Unconscionability Defense

Fordham University School of Law and University of Denver Sturm College of Law
52

April 23, 2024 in Recent Scholarship | Permalink

Friday, April 19, 2024

Contracts: Law in Action, Fifth Edition Is Available for Adoption!

Fans of the “law in action” tradition will be happy to learn that the authors of the contracts casebook bearing that name—Contracts: Law in Action—are on course to publish a new 5th edition for adoption fall 2024.  This edition is a significant update that consolidates what had Epstein_Wbeen a two-volume casebook into a single volume that can be used for a 3, 4 or 5 credit course.  While the casebook maintains its unique emphasis on remedies and the UCC as exceptionally important teaching tools, the volume also includes important materials on interpretation, performance and breach, which carry on the book’s unique “law in action” tradition.  The authors have also added materials on COVID (and contract in crisis, generally); updated problems to provide more experiential and transactional opportunities; added some very recent material on the use of AI in contract interpretation; and supplemented and/or updated the backgrounds to some key cases, including to provoke thought and conversation on the role of race, gender, socioeconomic status, etc., in contract law. An updated Teachers Manual, which will include sample examples with answer keys, will also be available.

Reach out to Prof. Wendy Epstein ([email protected]) (pictured) with any questions or to request a review copy.

April 19, 2024 in Books, Contract Profs, Recent Scholarship, Teaching | Permalink | Comments (0)

Tuesday, April 16, 2024

Tuesday Top Ten - Contracts & Commercial Law Top SSRN Downloads for April 16, 2024

Top-10-thumbsup

Top Downloads For:

Contracts & Commercial Law eJournal

Recent Top Papers (60 days)

As of: 16 Feb 2024 - 16 Apr 2024
Rank Paper Downloads
1.

Online behavioural advertising, consumer empowerment and fair competition: Are the DSA transparency obligations the right answer?

University of Amsterdam - Institute for Information Law (IViR), Institute for Information Law (IViR), University of Amsterdam, University of Amsterdam, University of Amsterdam, University of Amsterdam and University of Amsterdam
361
2.

Caveat Lector: Large Language Models in Legal Practice

The Chinese University of Hong Kong (CUHK) - Faculty of Law
233
3.

Reputation Reconsidered

University of Richmond School of Law
213
4.

Income Pools for Superstar Markets

University of Toronto, Mechanical and Industrial Engineering Department, University of Toronto - Rotman School of Management and University of Toronto, Mechanical and Industrial Engineering Department
136
5.

Oscar Law

Rutgers Law School and Rutgers School of Law, Students
130
6.

Introduction to the Law of Secured Transactions

Angelo State University - Business Law
123
7.

From Smart Legal Contracts to Contracts on Blockchain: An Empirical Investigation

Roma Tre University, Rome, Italy and Roma Tre University, Rome, Italy
116
8.

COVID-19 Risk Factors and Boilerplate Disclosure

New York University School of Law, University of Virginia School of Law, New York University School of Law and University of Michigan Law School
116
9.

Financial Hardship and Complaints-Handling in the Buy-Now Pay-Later Industry: A Recent Empirical Study

University of Melbourne, University of Melbourne - Melbourne Law School, Melbourne Law School - University of Melbourne and University of Melbourne - Law School
85
10.

A Dataset on the Contents of 100 Terms of Service of Online Platforms, Analyzed and Evaluated Under the EU Consumer Law

Jagiellonian University in Krakow - Faculty of Law and Administration, Jagiellonian University in Krakow, Jagiellonian University and Jagiellonian University in Krakow
76

 

Top Downloads For:

Law & Society: Private Law - Contracts eJournal

Recent Top Papers (60 days)

As of: 16 Feb 2024 - 16 Apr 2024
Rank Paper Downloads
1.

Reputation Reconsidered

University of Richmond School of Law
213
2.

Wearable AI, Bystander Notice, and the Question of Privacy Frictions

University of Denver Sturm College of Law
197
3.

Classical Liberalism and Corporate Law

University of Iowa College of Law
165
4.

NIL Enforcement Preemption

Recreation and Sport Management Program
101
5.

High-Status Versus Low-Status Stakeholders

Western Carolina University - College of Business
63
6.

Filling the Void: How E.U. Privacy Law Spills Over to the U.S.

New York University School of Law and New York University School of Law
58
7.

Rights Mediation: Contracts Law and the First Amendment

Oklahoma City University School of Law
57
8.

Reconciliation at the Border of Public and Private Law: Rethinking Contract Principles in the Context of Impact and Benefit Agreements

Conway Baxter Wilson LLP
53
9.

Empirical Study: Tax-related Measures in Investor-State Arbitration

WilmerHale LLC, The British Institute of International and Comparative Law (BIICL), WilmerHale LLC and WilmerHale LLC
49
10.

Introduction for The Arbitration Conversation: Insights and Wisdom from Experts in the Field

Ohio State University (OSU) - Michael E. Moritz College of Law
43

April 16, 2024 in Recent Scholarship | Permalink

Monday, April 15, 2024

Richard Frankel on the Corporate Response to Mass Arbitration

Frankel_bio_v2We have touched on this topic a few times before. We noted a challenge in the Seventh Circuit to mass arbitration here, and we provided Roku’s terms of service, which provide an illustration of the new practice of “batch arbitration.”  Richard Frankel (right) has undertaken the first large empirical study, as far as I know, of the corporate response to mass arbitration. Batch arbitration is just one of the tools in the new corporate arsenal. The article, Fighting Mass Arbitration: An Empirical Study of the Corporate Response to Mass Arbitration and Its Implications for the Federal Arbitration Act is available on SSRN here.

Professor Frankel looks at 82 arbitration clauses that corporations have introduced in response to mass arbitration. The new clauses introduce three innovations. First, over 80% of the clauses require pre-dispute mediation before a customer can bring an arbitration action, and failure to mediate may lead to dismissal of the arbitration claims.  Second, about 40% of the corporations in Professor Frankel’s data set are experimenting with variations on batch arbitration, in which a few claims are selected for arbitration.  The outcomes in those cases creates a baseline. The corporation then settles the remaining suits through mediation and only pays arbitration fees for a handful of cases.  Finally, corporations are seeking out arbitral bodies that charge low fees.

Arbitration
Image by DALL-E

Professor Frankel makes two very important points with respect to these corporate responses to  mass arbitration.  First, unsurprisingly, the effect of these new corporate measures is to suppress claims and make the arbitration process more procedurally complex and time consuming.  Second, Professor Frankel contends that the new forms of arbitration that corporations have made part of their terms of service are not covered under the Federal Arbitration Act (FAA).  That means that states can regulate in this area to prevent corporations from using new forms of arbitration to suppress claims. Indeed, Professor Frankel argues, the rise of mass arbitration illustrates that the FAA is ill-suited to address the claims affecting large groups of people. 

The Article traces the development of the FAA from "sleepy law" (7) to the primary mechanism that has allowed corporations to evade liability through class action bans, "even where such provisions impede injured parties from pursuing claims." (13) Plaintiffs' attorneys responded with mass arbitrations, a subject that we have covered, most recently, here.  That background sets the stage for Professor Frankel's empirical study of the corporate response.

Guess what! Nearly 90% of corporations in the study still use mandatory arbitration provisions.  The most popular response to mass arbitration, employed by 80% of corporations with mandatory arbitration provisions, has been to require some sort of pre-arbitration procedures, some of which toll the statute of limitations, some of which don't.  About 40% of the corporations have introduced batch arbitration requirement.  Batch arbitration can be combined with a bellwether approach, in which a few representative claims are heard and then become the basis for negotiations of a global settlement.  National Arbitration and Mediation and ADR Services are favored arbitration providers among the companies that do impose batch arbitration requirements on their customers or employees. Excerpt from a retreat for partners and associates who came up with these plans captured on video below.

The study includes lots of nuance and particularized evaluation of the techniques involved, explaining the processes and advantages to corporations of the various mechanisms adopted.

The next section of the Article weighs the effects of corporate responses to mass arbitration on access to justice.  Professor Frankel summarizes the effects of pre-arbitration exhaustion requirements as follows:

While pre-arbitration exhaustion carries the appeal of helping to resolve a dispute through informal mediation and thus avoiding the need to go through arbitration, it also leads to delay and erects additional hurdles for plaintiffs seeking to vindicate their rights. (36)

The new pre-arbitration mediation requirements differ from earlier versions of the same mechanism in that it appears that their primary goal "is simply to make it harder for claimants to file suit." (37). Moreover, "some pre-arbitration requirements seem to have no clear purpose other than to make mass arbitration more difficult or to lay traps for claimants."  Third, despite corporations' descriptions of pre-arbitration mediations as "informal," they sometimes impose onerous production burdens on claimants beyond what a court might require. (39) Finally, the pre-arbitration requirements provides corporations with a ready defense, as they can allege that claimants failed to exhaust alternatives to arbitration or litigation. (40-43)

The main effect of batching is delay, and at least two courts have cited that delay in striking batching requirements as unconscionable. (44) Batching and bellwether approaches reveal the duplicity of the class-action waiver strategy. Corporations attacked class arbitration on the ground that arbitral bodies are ill-suited to handle mass claims. Now they seek to force claimants to adjudicate their claims in batches, but on terms that the corporations control. (46-47). That same duplicity underlies corporate approaches to fees. Corporations defended class-action waivers by claiming that individual arbitrations were still convenient for claimants, as the corporations paid the fees. Then came mass arbitration, and it because clear that the corporations always assumed that class-action waivers would deter claims, because mass arbitration revealed that corporations did not anticipate paying fees for all of claimants who availed themselves of the arbitration mechanism.  In response to mass arbitration, corporations sought to defer paying fees through new mechanisms, batching and bellwether strategies that are designed to make most of the claims, and their attendant fees, disappear. (48-49)

In the final substantive section of the paper, Professor Frankel argues that many of the responses to mass arbitration fall outside of the FAA, mostly because they do not further the FAA's aim of speedy dispute resolution. That does not render them unlawful, but it does eliminate the preemption doctrine that has prevented states from regulating arbitration clauses that do fall within the FAA. Professor Frankel explains why both pre-arbitration mediation requirements and batching are not the sort of proceedings covered by the FAA. (50-55).

Professor Frankel discusses various legislative interventions that could strike down pre-arbitration mediation requirements as well as batching or bellwether schemes. (55-58) More radically, he suggests that batch arbitration exposes the doctrinal error at the heart of the SCOTUS rulings, culminating in Concepcion and Italian Colors, that treated class action waivers as enforceable under the FAA.  "[T]he Supreme Court’s notion of what makes a proceeding an arbitration under the FAA—that it is speedy, bilateral and procedurally simple—cannot be squared with mass harm." (59)

So, to sum up. The corporate response to mass arbitration reveals corporate ingenuity in seeking to throw up barriers to the vindication of contractual rights.  At the same time, it reveals their duplicity, claiming to leave open paths to justice that they have intentionally foreclosed.  The Supreme Court has indulged this duplicity, as Justice Kagan put it, "admirably flaunted rather than camouflaged" in opinions that made clear that the FAA, as interpreted by the Court, encourages the adoption of class-action waivers as a means of escaping accountability for contractual and statutory violations. The response to mass arbitration makes that duplicity impossible to ignore and opens a path, both to renewed state regulation of arbitration clauses and to the reconsideration of the Court's precedents that now, more clearly than ever, stand between claimants and the opportunity to vindicate their rights.

The Court's conservative majority is stuck between two fitting statements of its ethos.  As Justice Kagan noted, it wants to tell claimants "too darn bad."  But you guys are legends!  Don't follow precedents that have proved themselves unworkable!  Which brings us to our second statement about the ethos of the Roberts Court's super-majority.

Screenshot 2024-04-13 at 11.26.50 AMYou can buy the t-shirt here.

Congratulations to Professor Frankel!  It's not just a law review article; it's a legislative agenda and a litigation strategy!

April 15, 2024 in Recent Cases, Recent Scholarship | Permalink | Comments (0)

Tuesday, April 9, 2024

Tuesday Top Ten - Contracts & Commercial Law Top SSRN Downloads for April 9, 2024

Top-ten-clickelectrodomesticos
Reese's CupsBreaking News! Our benevolent and munificent King-of-the-Blog, Jeremy Telman, has made an appearance at #10 on the "Private Law: Contracts" Top Ten list for his article on contract law and the First Amendment. This article is literally (in its figurative sense) the Reese's Peanut Butter Cup of legal scholarship: two great tastes that taste great together. And we need not quibble over whether you put First Amendment in my contracts or you put contracts in my First Amendment! If you have not downloaded Rights Mediation: Contracts Law and the First Amendment then you are missing out on the XL-size version of the sort of quality material that Jeremy regularly brings to this space, and you ought to rectify that oversight right now.

With that public service announcement complete, let's check out the rest of the charts. 

Top Downloads For:

Contracts & Commercial Law eJournal

Recent Top Papers (60 days)

As of: 09 Feb 2024 - 09 Apr 2024
Rank Paper Downloads
1.

Online behavioural advertising, consumer empowerment and fair competition: Are the DSA transparency obligations the right answer?

University of Amsterdam - Institute for Information Law (IViR), Institute for Information Law (IViR), University of Amsterdam, University of Amsterdam, University of Amsterdam, University of Amsterdam and University of Amsterdam
346
2.

Consequential Damages: Alien Vomit or Intelligent Design?

University of Virginia - School of Law, University of Virginia - School of Law, The Becket Fund for Religious Liberty, University of Virginia (UVA) School of Law, Hunton Andrews Kurth LLP, Freshfields Bruckhaus Deringer - Freshfields Bruckhaus Deringer LLP, New York University School of Law and University of Virginia School of Law
288
3.

The Smart Contracts Trilemma

University of Hamburg - Institute of Law and Economics and Institute of Law and Economics, University of Hamburg
217
4.

Reputation Reconsidered

University of Richmond School of Law
209
5.

Caveat Lector: Large Language Models in Legal Practice

The Chinese University of Hong Kong (CUHK) - Faculty of Law
186
6.

Income Pools for Superstar Markets

University of Toronto, Mechanical and Industrial Engineering Department, University of Toronto - Rotman School of Management and University of Toronto, Mechanical and Industrial Engineering Department
133
7.

Oscar Law

Rutgers Law School and Rutgers School of Law, Students
127
8.

From Smart Legal Contracts to Contracts on Blockchain: An Empirical Investigation

Roma Tre University, Rome, Italy and Roma Tre University, Rome, Italy
116
9.

COVID-19 Risk Factors and Boilerplate Disclosure

New York University School of Law, University of Virginia School of Law, New York University School of Law and University of Michigan Law School
111
10.

The Supreme Court 'Pulled a Brodie': Swift and Erie in a Commercial Law Perspective

George Mason University - Antonin Scalia Law School
106

 

Top Downloads For:

Law & Society: Private Law - Contracts eJournal

Recent Top Papers (60 days)

As of: 09 Feb 2024 - 09 Apr 2024
Rank Paper Downloads
1.

Consequential Damages: Alien Vomit or Intelligent Design?

University of Virginia - School of Law, University of Virginia - School of Law, The Becket Fund for Religious Liberty, University of Virginia (UVA) School of Law, Hunton Andrews Kurth LLP, Freshfields Bruckhaus Deringer - Freshfields Bruckhaus Deringer LLP, New York University School of Law and University of Virginia School of Law
288
2.

The Smart Contracts Trilemma

University of Hamburg - Institute of Law and Economics and Institute of Law and Economics, University of Hamburg
217
3.

Reputation Reconsidered

University of Richmond School of Law
209
4.

Wearable AI, Bystander Notice, and the Question of Privacy Frictions

University of Denver Sturm College of Law
192
5.

Classical Liberalism and Corporate Law

University of Iowa College of Law
158
6.

Emergency Arbitration in India: a Need for Legislation Implementation

Independent
117
7.

NIL Enforcement Preemption

Recreation and Sport Management Program
101
8.

A Framework for Effective Smart Contracting

Babes-Bolyai University - Faculty of Law and Independent
80
9.

High-Status Versus Low-Status Stakeholders

Western Carolina University - College of Business
59
10.

Rights Mediation: Contracts Law and the First Amendment

Oklahoma City University School of Law
53

April 9, 2024 in Recent Scholarship | Permalink

Tuesday, April 2, 2024

Tuesday Top Ten - Contracts & Commercial Law Top SSRN Downloads for April 2, 2024

Top10-Granite

Top Downloads For:

Contracts & Commercial Law eJournal

Recent Top Papers (60 days)

As of: 02 Feb 2024 - 02 Apr 2024
Rank Paper Downloads
1.

Online behavioural advertising, consumer empowerment and fair competition: Are the DSA transparency obligations the right answer?

University of Amsterdam - Institute for Information Law (IViR), Institute for Information Law (IViR), University of Amsterdam, University of Amsterdam, University of Amsterdam, University of Amsterdam and University of Amsterdam
338
2.

Consequential Damages: Alien Vomit or Intelligent Design?

University of Virginia - School of Law, University of Virginia - School of Law, The Becket Fund for Religious Liberty, University of Virginia (UVA) School of Law, Hunton Andrews Kurth LLP, Freshfields Bruckhaus Deringer - Freshfields Bruckhaus Deringer LLP, New York University School of Law and University of Virginia School of Law
278
3.

The Smart Contracts Trilemma

University of Hamburg - Institute of Law and Economics and Institute of Law and Economics, University of Hamburg
213
4.

Reputation Reconsidered

University of Richmond School of Law
200
5.

Caveat Lector: Large Language Models in Legal Practice

The Chinese University of Hong Kong (CUHK) - Faculty of Law
165
6.

Income Pools for Superstar Markets

University of Toronto, Mechanical and Industrial Engineering Department, University of Toronto - Rotman School of Management and University of Toronto, Mechanical and Industrial Engineering Department
131
7.

From Smart Legal Contracts to Contracts on Blockchain: An Empirical Investigation

Roma Tre University, Rome, Italy and Roma Tre University, Rome, Italy
114
8.

COVID-19 Risk Factors and Boilerplate Disclosure

New York University School of Law, University of Virginia School of Law, New York University School of Law and University of Michigan Law School
108
9.

Oscar Law

Rutgers Law School and Rutgers School of Law, Students
106
10.

The Supreme Court 'Pulled a Brodie': Swift and Erie in a Commercial Law Perspective

George Mason University - Antonin Scalia Law School
105

 

Top Downloads For:

Law & Society: Private Law - Contracts eJournal

Recent Top Papers (60 days)

As of: 02 Feb 2024 - 02 Apr 2024
Rank Paper Downloads
1.

Consequential Damages: Alien Vomit or Intelligent Design?

University of Virginia - School of Law, University of Virginia - School of Law, The Becket Fund for Religious Liberty, University of Virginia (UVA) School of Law, Hunton Andrews Kurth LLP, Freshfields Bruckhaus Deringer - Freshfields Bruckhaus Deringer LLP, New York University School of Law and University of Virginia School of Law
278
2.

The Smart Contracts Trilemma

University of Hamburg - Institute of Law and Economics and Institute of Law and Economics, University of Hamburg
213
3.

Reputation Reconsidered

University of Richmond School of Law
200
4.

Wearable AI, Bystander Notice, and the Question of Privacy Frictions

University of Denver Sturm College of Law
182
5.

Classical Liberalism and Corporate Law

University of Iowa College of Law
140
6.

NIL Enforcement Preemption

Recreation and Sport Management Program
96
7.

Emergency Arbitration in India: a Need for Legislation Implementation

Independent
92
8.

Private Law's Choice of Private Law

Brooklyn Law School
79
9.

A Framework for Effective Smart Contracting

Babes-Bolyai University - Faculty of Law and Independent
72
10.

High-Status Versus Low-Status Stakeholders

Western Carolina University - College of Business
58

 

April 2, 2024 in Recent Scholarship | Permalink

Monday, April 1, 2024

What’s All the Fuss About?  Debt Tokens

Diane Lourdes DickWe recently started a new feature on the Blog. In addition to our Friday Frivolity, Teaching Assistants, and Reefer Brief installments, we now have “What’s All the Fuss About.”  These posts are devoted to scholarship that tops the charts on the SSRN Top Tens.  This time, all the fuss is about Debt Tokens, by Diane Lourdes Dick (left), Chris Odinet (below right), and Andrea Tosato (below left), collectively The Authors.  The Article has now racked up well in excess of 3000 downloads.  If you are not responsible for one of those downloads, here’s a quick summary. 

Caveat lector!  I emerged from reading this article with my knowledge of the field vastly improved.  I have progressed from infant to toddler.  I hope that I did not make too many infantile mistakes and that people with greater knowledge will feel free to offer suggestions and corrections and will do so gently.

The Article does three thingsFirst, it describes an existing phenomenon, debt tokens, which are digital assets that purport to provide a mechanism that allows creditors of bankrupt crypo-companies like FTX to liquidate distressed assets swiftly and advantageously.  The Article describes some existing variations on debt tokens that evolved in connection with the bankruptcies of Voyager Digital Holdings, Inc., Celsius Network, LLC, and FTX.

Debt tokens have an intuitive appeal.  There has long been a market in bankruptcy claims.  Creditors who need immediate liquidity can sell their bankruptcy claims to entities willing to pursue the claims through the bankruptcy proceedings.  The market in distressed assets may be as large as $300 billion/year.  Not surprisingly, that market is dominated by big players, who can leverage their economic power to buy debt cheaply and then maximize the return on their investment at their leisure.  In the cases of the three bankruptcies that the Authors discuss, customers lost access to their accounts once the entities entered bankruptcy proceedings.  FTX customers, who held unsecured claims against the company, sold their claims at 5-8 cents on the dollar.  Speculators were eager to swoop in and buy. Ordinary creditors are disadvantaged in the current markets.  Debt tokens have the potential to offer ordinary creditors an optimal range of options. 

OdinetHowever, the Authors warn, in their current form, debt tokens have inherent flaws.  The debt token exchange opened in connection with both the FTX and Celcius bankruptcies, OPNX, does not really deal in debt tokens. The bankruptcy claims of people who invest in OPNX assign those claims to OPNX.  The people who purchase tokens through OPNX do not have any rights against the bankruptcy estate; they have rights only against OPNX.  The token, the Authors claim, is an illusion.  OPNX claims to offer its customers liquidity and stability.  In fact, its products do not have those features.  If over 3000 people downloaded the Article because they needed to receive that message, then the Authors will have performed an important public service of consumer protection.

The products have no stability because ultimately the contract that customers enter into involves only them on OPNX.  The terms of conditions of that contract involves the following risk disclosure:

We provide no warranty as to the suitability of the Digital Assets traded on OPNXand assume no fiduciary or any other duty to you in connection with your use of our platform for any purpose whatsoever.

Yikes.

As to liquidity, what OPNX offers is not the ability to exchange tokens for actual U.S. dollars but the ability to exchange tokens for a "stablecoin."  That’s right.  Got burned by cryptocurrency?  Why not invest in another cryptocurrency.  But the stablecoin at issue, oUSD, is not even a real stablecoin, if there is such a thing, as OPNX discloses that the value of oUSD may not always be equal to one dollar.  Moreover, OPNX cannot guarantee its ability to redeem the token at any given moment. 

Editorial aside:  I don’t understand the mindset of these cryptocurrency enthusiasts.  Having just lost 90-95% of the value of your deposits in a cryptocurrency bank, why would you think that another digital asset will be any more secure?  On the other hand, I think I understand the mindset of the people who set up these debt token exchanges.  If this were a good model, I think it would be a good model for bankruptcies generally and not just for bankruptcies in the digital asset sector.  But the people behind debt tokenization know that investors who do not play in untamed waters of digital currency markets would be unlikely to play in the shark-infested waters of debt tokenization.  Want to sell some new snake oil?  Find people who bought the last batch. New and improved.  2.0.

Andrea TosatoThe Article’s second contribution consists of a better model for debt tokens within the framework of the 2022 Amendments to the Uniform Commercial Code (UCC).  The Authors maintain that the legal path to the tokenization of bankruptcy claims is worth pursuing, but it is narrow and beset with legal and commercial difficulties. My hunch is that the Article is motivated in part by the Authors' desire to show crypto-enthusiasts and the world at large that the 2022 UCC revisions can facilitate the use of digital assets in commercial transactions.  

This part of the Article begins with a useful introduction to the UCC’s new Article 12 and its new category of “controllable electronic records” (CERs), a category of intangible assets that a person can enjoy directly without the need for an intermediary.  Article 12 grants CERs the status of negotiability, greatly enhancing their usefulness in commercial transactions, including facilitating the use of CERs as collateral.  The 2022 Amendments include a special perfection regime for CERs that allows for perfection by control, a mechanism of perfection that gives the secured creditor who perfected by control priority over all completing claims, even over prior secured claims perfected by filing.

For the most parts, the 2022 Amendments do not cover tokenization.  However, one form of tokenization that is addressed is controllable accounts.  It is through this mechanism that the 2022 Amendments can facilitate the tokenization of trades in distressed assets.  The Authors lay out the options for how to do so, ranging from approaches without intermediaries to a completely intermediated approach.  I won’t go into the details here except to say that if over 3000 people downloaded the Article in order to learn how to do this right, the Authors will have performed an important public service of consumer education.

Finally, the Authors address the broader socio-economic implications of debt tokens.  In short, digital bankruptcy tokens may become a tool that can assist vulnerable creditors in recovering from bankrupt entities, but they also might become yet another vehicle for irrational speculation.  The upside is that Article 12 provides a vehicle for simplifying the process for making debt tokens negotiable, transferable, and trackable.  Trade in such tokens can proceed securely and with finality around the world and among parties that need not even know each other’s identities.  Article 12 thus could render trade debts significantly more liquid, greatly expanding the commercial market for them while also facilitating access to those markets by parties for whom the barriers to entry were previously insuperable.

However, if like me, you experience navigating this level of financial transaction as akin to walking a slippery tightrope strewn with banana peels while sadistic baseball pitchers attempt to bean you with fastballs, the Authors warn, a steep learning curve awaits you. And, given the crowded marketplace of ideas relating to digital assets and the very poor ratio of signal to noise in this realm, most creditors, debtors, practitioners, and judges will operate without the safety net of the Authors’ wise counsel.  Ever on brand, the Authors point to past episodes of irrational exuberance in this sphere (I’m looking at you, NFTs), and urge guardrails to protect the unwary. 

Although the Authors hold out some optimism for debt tokens as a vehicle for the democratization of markets in distressed assets, they predict that the primary acquirers of debt tokens will be highly specialized distressed debt funds.  Tokenization can improve bankruptcy outcomes and social welfare, but this realm will require careful watching, and the authors encourage empirical studies to follow up on their model.   If over 3000 people downloaded the Article because they want to undertake further study on the socio-economic impact of the tokenization of debt, the Authors will have anchored a new sub-field.

April 1, 2024 in Contract Profs, E-commerce, Recent Scholarship, Web/Tech | Permalink | Comments (0)

Wednesday, March 27, 2024

"Constructive Tuesday" Top Ten - Contracts & Commercial Law Top SSRN Downloads for March 27, 2024

Welcome to Wednesday! Or as we're calling it today in Contract-land, "Constructive Tuesday." Not even the forces of time itself will prevent our dive into the contact and commercial law scholarship burning up the charts. Let's check out what's hot in SSRN this week:

Top Ten Tuesday beach

 

Top Downloads For:

Contracts & Commercial Law eJournal

Recent Top Papers (60 days)

As of: 27 Jan 2024 - 27 Mar 2024
Rank Paper Downloads
1.

Consequential Damages: Alien Vomit or Intelligent Design?

University of Virginia - School of Law, University of Virginia - School of Law, The Becket Fund for Religious Liberty, University of Virginia (UVA) School of Law, Hunton Andrews Kurth LLP, Freshfields Bruckhaus Deringer - Freshfields Bruckhaus Deringer LLP, New York University School of Law and University of Virginia School of Law
241
2.

The Smart Contracts Trilemma

University of Hamburg - Institute of Law and Economics and Institute of Law and Economics, University of Hamburg
204
3.

Reputation Reconsidered

University of Richmond School of Law
195
4.

Consumerist Waste: Looking Beyond Repair

Stigler Center, University of Chicago Booth School of Business
148
5.

Caveat Lector: Large Language Models in Legal Practice

The Chinese University of Hong Kong (CUHK) - Faculty of Law
143
6.

Income Pools for Superstar Markets

University of Toronto, Mechanical and Industrial Engineering Department, University of Toronto - Rotman School of Management and University of Toronto, Mechanical and Industrial Engineering Department
127
7.

The Inequality of Bargaining Power Principle

University of California, Los Angeles (UCLA) - School of Law
118
8.

From Smart Legal Contracts to Contracts on Blockchain: An Empirical Investigation

Roma Tre University, Rome, Italy and Roma Tre University, Rome, Italy
112
9.

The Supreme Court 'Pulled a Brodie': Swift and Erie in a Commercial Law Perspective

George Mason University - Antonin Scalia Law School
101
10.

Oscar Law

Rutgers Law School and Rutgers School of Law, Students
96

 

Top Downloads For:

Law & Society: Private Law - Contracts eJournal

Recent Top Papers (60 days)

As of: 27 Jan 2024 - 27 Mar 2024
Rank Paper Downloads
1.

Consequential Damages: Alien Vomit or Intelligent Design?

University of Virginia - School of Law, University of Virginia - School of Law, The Becket Fund for Religious Liberty, University of Virginia (UVA) School of Law, Hunton Andrews Kurth LLP, Freshfields Bruckhaus Deringer - Freshfields Bruckhaus Deringer LLP, New York University School of Law and University of Virginia School of Law
241
2.

The Smart Contracts Trilemma

University of Hamburg - Institute of Law and Economics and Institute of Law and Economics, University of Hamburg
204
3.

Reputation Reconsidered

University of Richmond School of Law
195
4.

Wearable AI, Bystander Notice, and the Question of Privacy Frictions

University of Denver Sturm College of Law
171
5.

Consumerist Waste: Looking Beyond Repair

Stigler Center, University of Chicago Booth School of Business
148
6.

Classical Liberalism and Corporate Law

University of Iowa College of Law
127
7.

The Inequality of Bargaining Power Principle

University of California, Los Angeles (UCLA) - School of Law
118
8.

NIL Enforcement Preemption

Recreation and Sport Management Program
88
9.

Emergency Arbitration in India: a Need for Legislation Implementation

Independent
79
10.

Private Law's Choice of Private Law

Brooklyn Law School
79

 

March 27, 2024 in Recent Scholarship | Permalink | Comments (0)

Tuesday, March 19, 2024

Tuesday Top Ten - Contracts & Commercial Law Top SSRN Downloads for March 19, 2024

Top-10-handwritten

Top Downloads For:

Contracts & Commercial Law eJournal

Recent Top Papers (60 days)

As of: 19 Jan 2024 - 19 Mar 2024
Rank Paper Downloads
1.

Debt Tokens

The University of Iowa College of Law, University of Iowa - College of Law and University of Nottingham, School of Law
3,434
2.

Consequential Damages: Alien Vomit or Intelligent Design?

University of Virginia - School of Law, University of Virginia - School of Law, The Becket Fund for Religious Liberty, University of Virginia (UVA) School of Law, Hunton Andrews Kurth LLP, Freshfields Bruckhaus Deringer - Freshfields Bruckhaus Deringer LLP, New York University School of Law and University of Virginia School of Law
201
3.

Reputation Reconsidered

University of Richmond School of Law
180
4.

The Smart Contracts Trilemma

University of Hamburg - Institute of Law and Economics and Institute of Law and Economics, University of Hamburg
172
5.

Consumerist Waste: Looking Beyond Repair

Stigler Center, University of Chicago Booth School of Business
144
6.

Commercial Boilerplate: A Review and Research Agenda

Columbia University - Law School, New York University School of Law and University of Virginia School of Law
141
7.

Income Pools for Superstar Markets

University of Toronto, Mechanical and Industrial Engineering Department, University of Toronto - Rotman School of Management and University of Toronto, Mechanical and Industrial Engineering Department
122
8.

The Inequality of Bargaining Power Principle

University of California, Los Angeles (UCLA) - School of Law
113
9.

From Smart Legal Contracts to Contracts on Blockchain: An Empirical Investigation

Roma Tre University, Rome, Italy and Roma Tre University, Rome, Italy
107
10.

The Supreme Court 'Pulled a Brodie': Swift and Erie in a Commercial Law Perspective

George Mason University - Antonin Scalia Law School
93

 

Top Downloads For:

Law & Society: Private Law - Contracts eJournal

Recent Top Papers (60 days)

As of: 19 Jan 2024 - 19 Mar 2024
Rank Paper Downloads
1.

Debt Tokens

The University of Iowa College of Law, University of Iowa - College of Law and University of Nottingham, School of Law
3,434
2.

Consequential Damages: Alien Vomit or Intelligent Design?

University of Virginia - School of Law, University of Virginia - School of Law, The Becket Fund for Religious Liberty, University of Virginia (UVA) School of Law, Hunton Andrews Kurth LLP, Freshfields Bruckhaus Deringer - Freshfields Bruckhaus Deringer LLP, New York University School of Law and University of Virginia School of Law
201
3.

Reputation Reconsidered

University of Richmond School of Law
180
4.

The Smart Contracts Trilemma

University of Hamburg - Institute of Law and Economics and Institute of Law and Economics, University of Hamburg
172
5.

Wearable AI, Bystander Notice, and the Question of Privacy Frictions

University of Denver Sturm College of Law
164
6.

Consumerist Waste: Looking Beyond Repair

Stigler Center, University of Chicago Booth School of Business
144
7.

Commercial Boilerplate: A Review and Research Agenda

Columbia University - Law School, New York University School of Law and University of Virginia School of Law
141
8.

Classical Liberalism and Corporate Law

University of Iowa College of Law
113
9.

The Inequality of Bargaining Power Principle

University of California, Los Angeles (UCLA) - School of Law
113
10.

Private Law's Choice of Private Law

Brooklyn Law School
77

 

March 19, 2024 in Recent Scholarship | Permalink | Comments (0)

Tuesday, March 12, 2024

Tuesday Top Ten - Contracts & Commercial Law Top SSRN Downloads for March 12, 2024

Top-Ten-List Box

Top Downloads For:

Contracts & Commercial Law eJournal

Recent Top Papers (60 days)

As of: 12 Jan 2024 - 12 Mar 2024
Rank Paper Downloads
1.

Debt Tokens

The University of Iowa College of Law, University of Iowa - College of Law and University of Nottingham, School of Law
3,419
2.

Decentralised Autonomous Organizations: Targeting the Potential Beyond the Hype

Bank of Italy and University of Amsterdam - University of Amsterdam Faculty of Law
278
3.

The Smart Contracts Trilemma

University of Hamburg - Institute of Law and Economics and Institute of Law and Economics, University of Hamburg
166
4.

Reputation Reconsidered

University of Richmond School of Law
152
5.

Consumerist Waste: Looking Beyond Repair

Stigler Center, University of Chicago Booth School of Business
131
6.

Commercial Boilerplate: A Review and Research Agenda

Columbia University - Law School, New York University School of Law and University of Virginia School of Law
122
7.

Income Pools for Superstar Markets

University of Toronto, Mechanical and Industrial Engineering Department, University of Toronto - Rotman School of Management and University of Toronto, Mechanical and Industrial Engineering Department
120
8.

The Predilection for Contract in Governing Digital Networks: Micro-Management’s Face Off with Accountability

Norwegian Research Center for Computers and Law - Law Faculty, University of Oslo
116
9.

The Inequality of Bargaining Power Principle

University of California, Los Angeles (UCLA) - School of Law
108
10.

From Smart Legal Contracts to Contracts on Blockchain: An Empirical Investigation

Roma Tre University, Rome, Italy and Roma Tre University, Rome, Italy
104

 

Top Downloads For:

Law & Society: Private Law - Contracts eJournal

Recent Top Papers (60 days)

As of: 12 Jan 2024 - 12 Mar 2024
Rank Paper Downloads
1.

Debt Tokens

The University of Iowa College of Law, University of Iowa - College of Law and University of Nottingham, School of Law
3,419
2.

The Smart Contracts Trilemma

University of Hamburg - Institute of Law and Economics and Institute of Law and Economics, University of Hamburg
166
3.

Wearable AI, Bystander Notice, and the Question of Privacy Frictions

University of Denver Sturm College of Law
160
4.

Reputation Reconsidered

University of Richmond School of Law
152
5.

Commercial Boilerplate: A Review and Research Agenda

Columbia University - Law School, New York University School of Law and University of Virginia School of Law
122
6.

The Inequality of Bargaining Power Principle

University of California, Los Angeles (UCLA) - School of Law
108
7.

Private Law's Choice of Private Law

Brooklyn Law School
73
8.

What's The Use? The Structural Flaw Undermining Warhol v. Goldsmith

UNH Franklin Pierce School of Law
65
9.

Classical Liberalism and Corporate Law

University of Iowa College of Law
60
10.

Emergency Arbitration in India: a Need for Legislation Implementation

Independent
54

March 12, 2024 in Recent Scholarship | Permalink | Comments (0)

Tuesday, March 5, 2024

Tuesday Top Ten - Contracts & Commercial Law Top SSRN Downloads for March 5, 2024

Top Ten Bulb Vortex

Top Downloads For:

Contracts & Commercial Law eJournal

Recent Top Papers (60 days)

As of: 05 Jan 2024 - 05 Mar 2024
Rank Paper Downloads
1.

Debt Tokens

The University of Iowa College of Law, University of Iowa - College of Law and University of Nottingham, School of Law
3,399
2.

Decentralised Autonomous Organizations: Targeting the Potential Beyond the Hype

Bank of Italy and University of Amsterdam - University of Amsterdam Faculty of Law
205
3.

The Smart Contracts Trilemma

University of Hamburg - Institute of Law and Economics and Institute of Law and Economics, University of Hamburg
155
4.

Reputation Reconsidered

University of Richmond School of Law
136
5.

Consumerist Waste: Looking Beyond Repair

Stigler Center, University of Chicago Booth School of Business
122
6.

Introduction to The Cambridge Handbook of Private Law and Artificial Intelligence

National University of Singapore (NUS) - Faculty of Law and University of York - York Law School
118
7.

The Predilection for Contract in Governing Digital Networks: Micro-Management’s Face Off with Accountability

Norwegian Research Center for Computers and Law - Law Faculty, University of Oslo
116
8.

Commercial Boilerplate: A Review and Research Agenda

Columbia University - Law School, New York University School of Law and University of Virginia School of Law
113
9.

Income Pools for Superstar Markets

University of Toronto, Mechanical and Industrial Engineering Department, University of Toronto - Rotman School of Management and University of Toronto, Mechanical and Industrial Engineering Department
111
10.

The Inequality of Bargaining Power Principle

University of California, Los Angeles (UCLA) - School of Law
98

 

Top Downloads For:

Law & Society: Private Law - Contracts eJournal

Recent Top Papers (60 days)

As of: 05 Jan 2024 - 05 Mar 2024
Rank Paper Downloads
1.

Debt Tokens

The University of Iowa College of Law, University of Iowa - College of Law and University of Nottingham, School of Law
3,399
2.

The Smart Contracts Trilemma

University of Hamburg - Institute of Law and Economics and Institute of Law and Economics, University of Hamburg
155
3.

Wearable AI, Bystander Notice, and the Question of Privacy Frictions

University of Denver Sturm College of Law
155
4.

Reputation Reconsidered

University of Richmond School of Law
136
5.

Commercial Boilerplate: A Review and Research Agenda

Columbia University - Law School, New York University School of Law and University of Virginia School of Law
113
6.

The Inequality of Bargaining Power Principle

University of California, Los Angeles (UCLA) - School of Law
98
7.

Private Law's Choice of Private Law

Brooklyn Law School
73
8.

Legal strategy for commercial hostage-taking and business exit bans

California Polytechnic State University, San Luis Obispo
64
9.

What's The Use? The Structural Flaw Undermining Warhol v. Goldsmith

UNH Franklin Pierce School of Law
57
10.

High-Status Versus Low-Status Stakeholders

Western Carolina University - College of Business
50

March 5, 2024 in Recent Scholarship | Permalink | Comments (0)

Tuesday, February 27, 2024

Tuesday Top Ten - Contracts & Commercial Law Top SSRN Downloads for February 27, 2024

Top-Ten-stories-in-July

Top Downloads For:

Contracts & Commercial Law eJournal

Recent Top Papers (60 days)

As of: 29 Dec 2023 - 27 Feb 2024
Rank Paper Downloads
1.

Debt Tokens

The University of Iowa College of Law, University of Iowa - College of Law and University of Nottingham, School of Law
3,108
2.

Decentralised Autonomous Organizations: Targeting the Potential Beyond the Hype

Bank of Italy and University of Amsterdam - Amsterdam Center for Law & Economics (ACLE)
194
3.

Innovation, Disruption and Consumer Harm in the Buy Now Pay Later Industry: An Empirical Study

University of Melbourne, Melbourne Law School - University of Melbourne and University of Melbourne - Law School
157
4.

Case Note: Time as Essence and Liquidated Damages Clauses: A Critique of Welspun Specialty v ONGC

Independent and Galgotias University
135
5.

The Smart Contracts Trilemma

University of Hamburg - Institute of Law and Economics and Institute of Law and Economics, University of Hamburg
127
6.

The Predilection for Contract in Governing Digital Networks: Micro-Management’s Face Off with Accountability

Norwegian Research Center for Computers and Law - Law Faculty, University of Oslo
116
7.

On the Scales of Private Law: Nano Contracts

University of Alabama - School of Law
115
8.

Introduction to The Cambridge Handbook of Private Law and Artificial Intelligence

National University of Singapore (NUS) - Faculty of Law and University of York - York Law School
111
9.

Income Pools for Superstar Markets

University of Toronto, Mechanical and Industrial Engineering Department, University of Toronto - Rotman School of Management and University of Toronto, Mechanical and Industrial Engineering Department
107
10.

The Homebuyers Conundrum in Real Estate Insolvency

O.P. Jindal Global University and Insolvency Law Academy
98

 

Top Downloads For:

Law & Society: Private Law - Contracts eJournal

Recent Top Papers (60 days)

As of: 29 Dec 2023 - 27 Feb 2024
Rank Paper Downloads
1.

Debt Tokens

The University of Iowa College of Law, University of Iowa - College of Law and University of Nottingham, School of Law
3,108
2.

Wearable AI, Bystander Notice, and the Question of Privacy Frictions

University of Denver Sturm College of Law
143
3.

The Smart Contracts Trilemma

University of Hamburg - Institute of Law and Economics and Institute of Law and Economics, University of Hamburg
127
4.

The Inequality of Bargaining Power Principle

University of California, Los Angeles (UCLA) - School of Law
88
5.

Private Law's Choice of Private Law

Brooklyn Law School
65
6.

Legal strategy for commercial hostage-taking and business exit bans

California Polytechnic State University, San Luis Obispo
61
7.

What's The Use? The Structural Flaw Undermining Warhol v. Goldsmith

UNH Franklin Pierce School of Law
48
8.

High-Status Versus Low-Status Stakeholders

Western Carolina University - College of Business
36
9.

Smart Contracts in Blockchain Technology: A Critical Review

Hamta Group
33
10.

The CISG: Facilitating International Trade Through Uniform Sales Law

University of Buea
33

February 27, 2024 in Recent Scholarship | Permalink

Tuesday, February 20, 2024

Tuesday Top Ten - Contracts & Commercial Law Top SSRN Downloads for February 20, 2024

Top-10 Block Letters

Top Downloads For:

Contracts & Commercial Law eJournal

Recent Top Papers (60 days)

As of: 22 Dec 2023 - 20 Feb 2024
Rank Paper Downloads
1.

Decentralised Autonomous Organizations: Targeting the Potential Beyond the Hype

Bank of Italy and University of Amsterdam - Amsterdam Center for Law & Economics (ACLE)
177
2.

Innovation, Disruption and Consumer Harm in the Buy Now Pay Later Industry: An Empirical Study

University of Melbourne, Melbourne Law School - University of Melbourne and University of Melbourne - Law School
145
3.

Case Note: Time as Essence and Liquidated Damages Clauses: A Critique of Welspun Specialty v ONGC

Independent and Galgotias University
126
4.

The Predilection for Contract in Governing Digital Networks: Micro-Management’s Face Off with Accountability

Norwegian Research Center for Computers and Law - Law Faculty, University of Oslo
114
5.

On the Scales of Private Law: Nano Contracts

University of Alabama - School of Law
112
6.

Introduction to The Cambridge Handbook of Private Law and Artificial Intelligence

National University of Singapore (NUS) - Faculty of Law and University of York - York Law School
102
7.

The Smart Contracts Trilemma

University of Hamburg - Institute of Law and Economics and Institute of Law and Economics, University of Hamburg
94
8.

The Homebuyers Conundrum in Real Estate Insolvency

O.P. Jindal Global University and Insolvency Law Academy
93
9.

The Inequality of Bargaining Power Principle

University of California, Los Angeles (UCLA) - School of Law
79
10.

Book and Claim System for Sustainable Aviation Fuels

Arnecke Sibeth Dabelstein and Arnecke Sibeth Dabelstein
76

 

Top Downloads For:

Law & Society: Private Law - Contracts eJournal

Recent Top Papers (60 days)

As of: 22 Dec 2023 - 20 Feb 2024
Rank Paper Downloads
1.

The Smart Contracts Trilemma

University of Hamburg - Institute of Law and Economics and Institute of Law and Economics, University of Hamburg
94
2.

The Inequality of Bargaining Power Principle

University of California, Los Angeles (UCLA) - School of Law
79
3.

Private Law's Choice of Private Law

Brooklyn Law School
62
4.

Legal strategy for commercial hostage-taking and business exit bans

California Polytechnic State University, San Luis Obispo
58
5.

What's The Use? The Structural Flaw Undermining Warhol v. Goldsmith

UNH Franklin Pierce School of Law
43
6.

Smart Contracts in Blockchain Technology: A Critical Review

Hamta Group
31
7.

Economic Duress in U.S. Employment

LMU Loyola Law School
31
8.

The CISG: Facilitating International Trade Through Uniform Sales Law

University of Buea
31
9.

The Unbearable Narrowness of Undue Influence

Southwestern Law School
26
10.

The FAA Should Not Cover Consumer Claims

University of Maryland Francis King Carey School of Law
25

February 20, 2024 in Recent Scholarship | Permalink

Friday, February 16, 2024

A New Take on Consequential Damages

Hadley MillI am always on the lookout for a fresh take on familiar material, and I must admit, it had never occurred to me that the rule from Hadley v. Baxandale might be either alien vomit or intelligent design, as I had come to understand those terms.  Tara Chowdhury, Faith Chudkowski, Amanda Dixon, Rishabh Sharma, Madison Sherrill, Hadar Tanne, Stephen J. Choi, and Mitu Gulati (the Authors) have made me rethink that position.  They suggest that we should re-imagine contractual limitations on consequential damages as either one or the other in Consequential Damages: Alien Vomit or Intelligent Design, available for download now on SSRN.

Hadley, of course, provides nothing but a default rule, around which the parties can freely contract.  The Authors reviewed over 1300 contracts and interviewed over 100 practitioners.  They discovered that negotiated consequential damages provisions "are often hopelessly ambiguous and that their inclusion in contracts is sometimes more habit than intention."  The Authors begin with a real classroom exercise.  Students were presented with a typical no consequential damages (NCD) clause from a contract negotiated between sophisticated parties.  The provision was in ALLCAPS, which shows you right off the bat that the parties aren't as sophisticated as they think they are.  The students quickly remarked that the provision was "incomprehensible gibberish."  And so a research project was launched.

At the heart of the matter is a puzzlement.  The Hadley default rule is that you cannot get consequential damages unless they were within the contemplation of the parties at the time the contract was formed.  If the default is no consequential damages, what is there to contract around?  Perhaps sophisticated parties want to specify the consequential damages that they do contemplate.  Nope.  Time constraints and inertia lead to the retention of boilerplate provisions that nobody pays attention to.  NCD clauses do not reflect any careful consideration or negotiation by the parties.  Once again, even the lawyers don't know what the contracts they draft and negotiate say.  Practitioners and scholars fall into two camps on NCD clauses.

The Alien Vomit Theory

Alien vomit
Image by DALL-E

A prominent practitioner, Glenn West, traced how NCD clauses found their way into M&A transactions.  He concluded that the clauses were borrowed from construction and supply contracts.  Hence, I suppose, alien vomit.  In the M&A context, they either protect against irrelevant risks or just create confusion by importing undefined language about "special," "indirect," "consequential," or "unnatural" damages.  The obscurity of these clauses introduces risk, as it is unclear to courts what they are intended to exclude.  

Alien vomit is especially dangerous to buyers in M&A transactions.  The categories of damages potentially excluded through NCD clauses represent precisely the value one is trying to achieve through an acquisition.  That is, the sale price of a business entity is linked to its potential to generate future profits.  If such profits are excluded from recovery, what is there left for buyers to recover?

I must admit that I am part of the problem.  The Authors identify terms that practitioners have found to be in need of definition.  I expect my students to know the difference between direct, incidental, and consequential damages.  Last year I used a casebook for Sales that had exercises in which students were supposed to name the category into which different types of damages fell.  The casebook authors' answers all made sense to me, and thus I was under the illusion that it was possible to distinguish among the categories. 

For example, it seems to me that future profits to be generated from the acquisition of a business entity are direct damages, not consequential.  They may be problematically speculative, but they would arise directly from a breach.  Experienced attorneys apparently think otherwise.  It would be nice if we had some evidence of how courts treat such NCD clauses, but it may just be that nobody gives much thought to alien vomit, because it, like much boilerplate, never generates disputes that result in litigation.  If the disputes arise in such transactions, the parties might agree to walk away from the deal, or the transactional attorneys can just iron our the wrinkles themselves rather than leaving things to the really scary aliens, litigators.  

Similarly, practitioners see no need to exclude "exemplary," "punitive," or "treble," damages, none of which would be recoverable for breach of contract in any case.  But that also doesn't seem right to me.  Why aren't these clauses useful to prevent, e.g., exemplary damages that would arise from a fraud claim or a breach of fiduciary duty claim in connection with a breach of contract, or statutory damages that might allow for punitive or treble damages?  When I taught Remedies, I learned that punitive damages are more often awarded on contracts claims than on torts claims because there are hundreds of statutes that provide for punitive damages for certain kinds of breach of contract.

Optimal Design

Penguins with Golden Egg
Image by DALL-E

Meanwhile, academics writing in the tradition of law and economics have argued that NCD clauses are the product of parties that have carefully considered the matter and negotiated the most efficient allocation of risk.  They have rejected Hadley in favor of an allocation of exposure to liability tailored to the needs of their clients in connection with this particular transaction.  The Authors' research calls this theory into question.  

An aside: I have devoted some time to working through Victor Goldberg's work on contracts damages (I need to get back to that project!).  He seems to have a foot in both camps.  He certainly sometimes speaks the language of optimal design theory, but he also notes how often fuzzy contract terms get the parties in trouble.  However, I think Professor Goldberg is inclined to blame courts for the confusion, at least in part.  At least sometimes, the parties have made very clear that they intend to contract around default rules, but the courts resist, often in a misguided effort to promote what they think are the efficiency and fairness goals best achieved through adherence to common-law defaults.

The Authors' review of NCD clauses in three categories of commercial contracts indicates that use is steady, even in the face of determined warnings from experienced M&A attorneys like Glenn West about their dangers.  They are less common in M&A for public deals, perhaps because of federal statutory regimes that make NCD clauses unnecessary.  However, given the Authors' thesis that NCD clauses are largely unnecessary, inertia seems the more likely explanation.  That is, for whatever reason, NCD clauses did not make their way into the standard boilerplate of these types of transactions.  Alien vomit has spread to 10%-20% of such transactions, but in most cases, either the aliens are vomiting elsewhere or some keen-eyed lawyers is saying, "Ew, that's alien vomit!  We've got plenty of our own vomit in this deal without borrowing language from a different transaction!"

The Authors break down the problematic clauses into three categories: deadly, redundant, and ambiguous.  While there are ups and downs over time, all three categories have enjoyed remarkable staying power since 2010.  That is, while their use fluctuates over time, and while some terms are more likely to appear in one category of transactions rather than another, there is no general trend of decline in use. 

When questioned on the meaning of consequential damages, one set of lawyers gave confident '"incorrect" answers.  Given that the Authors' argument seems to be that the term has no fixed meaning, this seems a tad unfair to the respondents. What is a correct answer? A second set consisting of junior lawyers mostly shamelessly admitted that they had no idea and that it didn't matter because NCD clauses are meaningless boilerplate that never get litigated.  A third set, consisting of more senior lawyers had more specific ideas about consequential damages, but nobody thought that NCD clauses achieve anything beyond Hadley.  

When M&A gurus are interviewed on the subject, they give very different answers.  It seems that the only reason NCD clauses get negotiated is that some gurus want them out, and when they ask for them to be taken out, out they go.  Nobody cares, because liability caps and insurance render them irrelevant anyway.  As it turns out, this too is incorrect.  If a buyer allows a limitation on lost profits to survive the negotiation, that buyer may not be able to recover anything, and insurance and liability caps won't even come into play, assuming, contrary to argument above that lost profits are not direct damages or have been expressly excluded.  In any case, careful attention to caselaw establishing the contractual default provisions is not a factor.  Transactional attorneys look at other transactions, not at case law, when deciding what language to include in the agreement.

This article is a delightful read and has given me a great deal to think about beyond its catchy title, so congratulations to the Authors!  It is very encouraging to see a project that begins in the classroom, goes out into the world of empirical legal scholarship and that can return to the classroom by giving contracts professors new insights into dealmaking.

February 16, 2024 in Famous Cases, Recent Scholarship | Permalink | Comments (1)

Tuesday, February 13, 2024

Tuesday Top Ten - Contracts & Commercial Law Top SSRN Downloads for February 13, 2024

Top-10 Glass

The Tuesday Top Ten returns today after a brief illness-induced hiatus last week. Apologies to any who missed their regular download fixes, but we are back and—as traditional puffery requires me to say—BETTER THAN EVER! Now, let's check the SSRN download charts to see what's happening.

Top Downloads For:

Contracts & Commercial Law eJournal

Recent Top Papers (60 days)

As of: 15 Dec 2023 - 13 Feb 2024
Rank Paper Downloads
1.

Decentralised Autonomous Organizations: Targeting the Potential Beyond the Hype

Bank of Italy and University of Amsterdam - Amsterdam Center for Law & Economics (ACLE)
161
2.

Innovation, Disruption and Consumer Harm in the Buy Now Pay Later Industry: An Empirical Study

University of Melbourne, Melbourne Law School - University of Melbourne and University of Melbourne - Law School
131
3.

Case Note: Time as Essence and Liquidated Damages Clauses: A Critique of Welspun Specialty v ONGC

Independent and Galgotias University
119
4.

The Predilection for Contract in Governing Digital Networks: Micro-Management’s Face Off with Accountability

Norwegian Research Center for Computers and Law - Law Faculty, University of Oslo
110
5.

On the Scales of Private Law: Nano Contracts

University of Alabama - School of Law
108
6.

Introduction to The Cambridge Handbook of Private Law and Artificial Intelligence

National University of Singapore (NUS) - Faculty of Law and University of York - York Law School
96
7.

The Homebuyers Conundrum in Real Estate Insolvency

O.P. Jindal Global University and Insolvency Law Academy
89
8.

The Law of Loyalty: Table of Contents and Chapter 1

Downing Professor of the Laws of England
72
9.

Speech, Complicity, Scarcity, and Public Accommodation

University of Mississippi - School of Law
70
10.

The Mass Tort Claimants' Bargain

University of California, Los Angeles (UCLA) - School of Law
70

 

Top Downloads For:

Law & Society: Private Law - Contracts eJournal

Recent Top Papers (60 days)

As of: 15 Dec 2023 - 13 Feb 2024
Rank Paper Downloads
1.

The Inequality of Bargaining Power Principle

University of California, Los Angeles (UCLA) - School of Law
63
2.

Legal strategy for commercial hostage-taking and business exit bans

California Polytechnic State University, San Luis Obispo
54
3.

Private Law's Choice of Private Law

Brooklyn Law School
45
4.

What's The Use? The Structural Flaw Undermining Warhol v. Goldsmith

UNH Franklin Pierce School of Law
32
5.

Smart Contracts in Blockchain Technology: A Critical Review

Hamta Group
31
6.

The CISG: Facilitating International Trade Through Uniform Sales Law

University of Buea
31
7.

Economic Duress in United States Employment

LMU Loyola Law School
28
8.

The Unbearable Narrowness of Undue Influence

Southwestern Law School
25
9.

Amici Curiae Brief in Support of Henrietta Lacks Estate [v. Ultragenyx]

Louisiana State University, Baton Rouge - Paul M. Hebert Law Center and Washington and Lee University - School of Law
21
10.

The FAA Should Not Cover Consumer Claims

University of Maryland Francis King Carey School of Law
20

February 13, 2024 in Recent Scholarship | Permalink