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Contracts of Inattention

Published online by Cambridge University Press:  31 May 2021

Marcel Kahan  and
Mitu Gulati
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Abstract

The standard paradigm of contracting assumes that parties will revise subsequent contracts if a court interpretation of a clause does not reflect their intent. This assumption, however, often does not match behavior—particularly, in boilerplate contracts. We examine the aftermath of an (in)famous 2016 case, Wilmington Savings Fund v. Cash America, to unpack possible reasons for this mismatch between theory and practice. We find evidence of a phenomenon in contracts that involves sophisticated parties who are nevertheless not represented by their own lawyers, lack full awareness of the fine print of the contractual terms, and, having devoted little attention to them, may be eclectic as to their meaning when they enter into these contracts. In these contracts, which we call contracts of inattention, a gap between lawyers’ understanding of a provision and the understanding of market participants is prone to emerge. The potential for such gaps has implications for how courts should interpret contracts of inattention and for how market participants will react to court rulings.

Type
Articles
Information
Law & Social Inquiry , Volume 46 , Issue 4 , November 2021 , pp. 1115 - 1140
Copyright
© The Author(s), 2021. Published by Cambridge University Press on behalf of the American Bar Foundation

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Footnotes

The qualitative research for this project was done under Duke University Institutional Review Board Protocal no. 2017-1192. For comments, thanks to Lee Buchheit, Victor Goldberg, Bob Scott, Eric Talley, Glenn West, and the anonymous referees for this journal.

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