ABSTRACT
Incomplete contract theory recognizes that contracts cannot be comprehensive and that state law necessarily has to fill in gaps when conflicts arise. The more complex the transaction, the more that lawyers face practical constraints that force them to limit the scope of drafting and broadly rely on legal defaults and open-ended terms to plug holes and address contingencies. In theory Delaware law serves as lawyers’ preferred jurisdiction and forum for merger and acquisition (M&A) transactions and other high-end corporate deals because of the state’s superior default rules for corporate law and its judiciary’s expertise in discerning the ‘hypothetical bargain’ of the parties.
This paper sets out to examine whether lawyers’ professed confidence in Delaware defaults actually shows up in the drafting of merger and acquisition agreements. Lawyers may base deals in Delaware law because of their familiarity with its provisions, or Delaware’s appeal may reflect the substantive adding of value in filling contractual gaps. Our premise is that the best proxy for examining lawyers’ reliance on a jurisdiction’s defaults is the extent of brevity in legal drafting, which is closely related to reliance on standards rather than rules …
Jeffrey Manns and Robert Anderson, Contract Design, Default Rules, and Delaware Corporate Law, 77 Washington and Lee Law Review 1197 (2020).
First posted 2020-10-20 10:01:23
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