Ex Tempore Contracting
Wake Forest University School of Law
January 13, 2013
William & Mary Law Review, Vol. 55, No. 1869, 2014
Leading contracts scholarship 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 are left vague, for a court to specify ex post if it should prove important. This ex ante/ex post dichotomy, implicit in contract scholarship for some time, is used to explain attempts to model the optimal contracting and contract interpretation process. 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 court to later elaborate its meaning. Yet this dichotomy obscures a third, “real-time” approach to contracting: parties frequently leave terms unspecified, while delegating 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.
This Article evaluates ex tempore contracting through three case studies. Using a unique cache of data only recently made available, it explores a novel dispute management system now prevalent in the construction industry that calls for the use of “dispute boards.” 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. Yet 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, subprime mortgages, industrial supply contracts and countless other transactions.
The pervasiveness of ex tempore contracting has profound implications for judicial interpretation of contracts. Realizing that the parties may have wished to allocate determination to an agent, rather than themselves ex ante or the court ex post, casts doubt on the use of penalty defaults, problematizes the debate about interpretative formalism, and urges judges to accept, rather than hinder, parties’ choice to rely on ex tempore contracting.
Number of Pages in PDF File: 60
Keywords: Contracts, Dispute Boards, Construction, Derivatives, Dispute Resolution, Formalism, Indices, Libor, Adjustable Rate Mortgage, Earnouts, Penalty Defaults, Interpretation, Ex Ante, Ex Post, ISDA, CDS, Gulf Oil, Eastern Airlines, ALCOA, Essex, Jacob & Youngs, Kent, Vagueness, Completness, AdjudicationAccepted Paper Series
Date posted: August 6, 2012 ; Last revised: August 29, 2014
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