Citations (2)


Footnotes (150)



On Uncertainty, Ambiguity, and Contractual Conditions

Eric L. Talley

Columbia University - School of Law; University of California, Berkeley - Boalt Hall School of Law

Delaware Journal of Corporate Law (DJCL), Vol. 34, No. 3, 2009
UC Berkeley Public Law Research Paper No. 1503088

This article uses the recent Delaware Chancery Court case of Hexion v. Huntsman as a template for motivating thoughts about how contract law should interpret contractual conditions in general - and "material adverse event" provisions in particular - within environments of extreme ambiguity (as opposed to risk). Although ambiguity and aversion thereto bear some facial similarities to risk and risk aversion, an optimal contractual allocation of uncertainty does not always track the optimal allocation of risk. After establishing these intuitions as a conceptual proposition, I endeavor to test them empirically, using a unique data set of 528 actual material adverse event provisions in corporate acquisitions transactions between 2007 and 2008. My results are consistent with my conceptual account distinguishing risk from uncertainty. Although intuitive, the idea that material adverse event provisions can be a means for allocating uncertainty contrasts with the received wisdom in corporate law scholarship about the nature and purpose of such terms. Using MAC/MAE provisions as an animating narrative, this article concludes that the behavioral economics concept of ambiguity aversion is a helpful device for understanding contractual conditions and excuses.

Number of Pages in PDF File: 58

Keywords: Delaware, Journal, Corporate, Law, DJCL, Chancery, Hexion, Huntsman, ambiguity, aversion, risk, contractual, MAC, MAE

Open PDF in Browser Download This Paper

Date posted: November 9, 2009  

Suggested Citation

Talley, Eric L., On Uncertainty, Ambiguity, and Contractual Conditions. Delaware Journal of Corporate Law (DJCL), Vol. 34, No. 3, 2009; UC Berkeley Public Law Research Paper No. 1503088. Available at SSRN: http://ssrn.com/abstract=1503088

Contact Information

Eric L. Talley (Contact Author)
Columbia University - School of Law ( email )
435 West 116th Street
New York, NY 10025
United States
HOME PAGE: http://www.erictalley.com
University of California, Berkeley - Boalt Hall School of Law ( email )
215 Boalt Hall
Berkeley, CA 94720-7200
United States
(510) 642-7875 (Phone)
HOME PAGE: http://www.erictalley.com
Feedback to SSRN

Paper statistics
Abstract Views: 1,627
Downloads: 327
Download Rank: 67,868
Citations:  2
Footnotes:  150

© 2016 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollobot1 in 0.187 seconds