Ex Tempore Contracting
Yale Law School Center for the Study of Corporate Law
February 17, 2012
Yale Law & Economics Research Paper No. 454
William & Mary Law Review, Vol. 55
This Article argues that a cornerstone assumption of contemporary contracts scholarship is misleading and limited. Leading academic commentary explicitly assumes that contractual responsibilities are determined in the following way: parties determine many of their duties ex ante, by specifying terms at the time of contract formation, and the rest of the terms they leave vague, for a court to specify ex post if it should prove important. This ex ante / ex post dichotomy is the guiding framework in attempts to understand contract design and interpretation. For example, parties use terms like “merchantable” quality when the cost of being more specific up front is higher than the cost of relying on a court to later elaborate its meaning. Yet this dichotomy obscures a third, “real-time” approach to contracting: parties frequently leave terms unspecified and delegate ongoing determination to someone other than a court. This Article identifies this phenomenon, which can be called – as opposed to ex ante and ex post – "ex tempore" contracting.
Using a unique cache of data only recently made available, this Article explores ex tempore contracting through a novel dispute management system now prevalent in the construction industry, called a “dispute board.” These expert panels radically reduce the cost and frequency of litigation by determining the parties’ responsibilities whenever the parties wish, including in the course of performance. Ex tempore contracting is not merely a dispute resolution system for the construction industry. Ex tempore contracting is also essential to the massive financial derivatives market and countless other transactions. This Article develops important insights for judicial interpretation of contracts and the scholarly analysis thereof. For example, the possibility ex tempore contracting casts doubt on the wisdom of information-forcing penalty defaults and urges courts to enforce ex tempore contracting clauses much more often than they currently do.
Number of Pages in PDF File: 58Accepted Paper Series
Date posted: August 6, 2012 ; Last revised: March 27, 2013
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