The Form Knows Best (Does it Really?)

A few weeks ago, I got to give a talk at the University of Miami.  The focus: six myths about contracts, as many of us teach contract law (or at least as I teach it).  The talk was a blast -- the faculty at Miami were wonderful and generous, but poked all sorts of big holes in my claims.  The broader topic, in a little essay titled "The Form Knows Best" with two superb students (Tara Chowdhury and Faith Chudkowski), was the gravitational pull of the standard form on contract drafting practices. Our abstract:

Law students learn that contracts are carefully negotiated, precisely drafted, and shaped by doctrine. But lawyers tell a different story. This article compares six pillars of contract law with what we heard in over 170 interviews with senior transactional lawyers across M&A, sovereign bonds, and leveraged loans. The result is a gap between the Official Story taught in classrooms and the Unofficial Story told by practitioners—where boilerplate dominates, case law is rarely consulted, and market custom often prevails over rational design. We suggest that many contracts are better understood as historical artifacts—products of inherited forms and production pressure. Or, as one lawyer put it, more Mars Bar than masterpiece. That gap may matter—especially when courts often interpret form as if it reflects intent.

One of my favorite bits of the exercise of working on the article was going through the hundreds of pages of transcripts from our interviews (to be fair: Tara and Faith, my co authors, did all the heavy lifting in painstakingly working through the interview recordings and transcripts).  And one of the quotes they found, that we start the Essay with, is my favorite.  The quote is below (from a Magic Circle Firm lawyer, talking about the drafting of bonds versus loans).

Bonds are Mars Bars. Loans are bespoke cakes . . . A bond or Mars Bar is what the client wants, what the banks are marketing, what the investor expects. It needs to be recognized as such. Everyone understands Mars Bars are mass produced, barely edible things . . . you have Snickers [in the U.S.]. Bespoke cake or loans may taste better, but you do not know what it is until you have tasted it. They are unique, non-fungible and not really tradeable. Mars Bars are mass produced, fungible, and tradeable. And when changes are made, provided the end-product is recognizably-packaged . . . changes do not really matter—but big changes may matter when digestion time comes.

The always brilliant Glenn West, was kind enough to pen a comment.  "The Form Doesn't Know Anything".  Glenn on the realities of contract drafting is always worth reading.  He is both funny and insightful.  His abstract is here:

Merger and acquisition agreements differ significantly from sovereign bonds. While I have criticized the stubborn persistence of harmful or ineffective boilerplate in the M&A deal world, this persistence does not stem from a desire for uniformity or blind adherence to a sacred form. The dynamics involved in negotiating merger and acquisition agreements often dictate that comments on a form agreement be kept to a minimum, making the improvement of the form a secondary goal. Moreover, what one party considers bad boilerplate may be seen as beneficial by another. Many of the myths supposedly debunked by Chowdhury, Chudkowski & Gulati may, in fact, not be myths at all, at least in M&A. But one conclusion they draw appears to apply equally to M&A—the tug of form and market is strong indeed.

 

Comments

[Allan]

Forms, yuck.

Try to get change a boilerplate form for any consumer contract, e.g., a car purchase, a mortgage, and it is impossible. Loan officer will say "no, this is what we have, take it or leave it." That makes sense from the lender's perspective. Having a lawyer review changes to every contract to buy a car would greatly increase the cost. Changing mortgage terms could make them unmarketable. As an exercise, try getting your local apartment complex to change lease terms. . . good luck, even when the change makes sense and would inure to their benefit.