Private Law Theory

ABSTRACT
Standard contract theory assumes that sophisticated drafters read formal judicial opinions and revise agreements accordingly. This Essay challenges that model by demonstrating how informal judicial signaling shapes contract production and the reliance on default rules through contractual silence. Using mergers and acquisitions (M&A) sandbagging provisions as a case study, we examine why contractual silence surged to 72% following the Delaware Supreme Court’s 2018 Eagle Force decision – which cast doubt on Delaware’s sandbagging default – despite eminent commentators universally urging counsel to draft express clauses in response to the uncertainty. Analyzing 3,642 public agreements from 2010 to 2025 alongside practitioner interviews, we introduce the ‘Delaware signal’ hypothesis. When formal opinions create market ambiguity, Delaware judges utilize informal channels like bar conferences and committee meetings to reassure elite attorneys. Rather than increased uncertainty that one would expect from the Eagle Force decision, the informal efforts of the Delaware judges led to a more certain, strengthened sandbagging default. Because active bargaining generates significant transaction costs and client friction, this robust default diminished the benefit of express drafting, leading drafters to opt for contractual silence.

Choi, Stephen J and Gulati, Mitu and Ball, Molly, The Sound of Silence (July 24, 2026), Virginia Public Law and Legal Theory Research Paper No 2026-47; Virginia Law and Economics Research Paper No 2026-15.