Over the last year, the blogs have devoted considerable space and time to discussing the contours of the contracts course of the future. Opinions vary considerably. The pedagogical challenge is how to enrich the existing curriculum without losing what is important.

For the record, I do not advocate dismantling the first-year contracts course. Students need to learn about the evolution of the common law, doctrinal subtleties, policy arguments, and theory. But I do advocate substantial and substantive changes.

In deciding what changes to make, I think that we must take a step back and think about the course globally. I have concluded that we must address four issues:

· First, that most students learn about contracts without context.

· Second, what they learn and the way they learn it is disjointed.

· Third, students have little understanding of business.

· Fourth, most contract courses teach few, if any, deal skills.

The students’ unfamiliarity with the deal world exacerbates all of these issues. When they enter law school, they have in their mind a picture of what it means to be a litigator. They have all watched Law & Order, Boston Legal, and maybe even some Perry Mason reruns. But students have no picture in their mind of what a transaction is or what a deal lawyer does. We must begin by creating that picture.

In my perfect world, I would create a mini-movie that was a series of vignettes showing parties and their lawyers working their way through a hypothetical transaction. These vignettes would be a tool to demonstrate the contract concepts in context. As students studied a particular concept, they would see it play out in the movie in the parties’ relationship. We would create for them an actual picture of a deal. These vignettes would also show lawyers working collaboratively while concurrently protecting and advancing their clients’ interests. This would help set the stage for later courses in drafting and negotiation.

To give students further context, we need to broaden our concept of what a contract is. While the Restatement defines a contract in terms of promises, clients and their lawyers see a contract more broadly. There are representations and warranties, conditions, discretionary authority, and general policies governing the relationship. It is all of these together that state the business deal.

Students need to see all of these contract concepts in a dynamic context – that is, in a contract. By seeing how these contract concepts work together from both a business and legal perspective, students will learn their way around a contract and make connections between the contract concepts they are learning. In addition, the course will become less disjointed; theory will be linked to practice; and ultimately, students will gain a greater appreciation for the case law that they are learning.

By broadening the nature of what a contract is, we can also begin to teach students the translation skill – that is the analytical skill that deal lawyers use. It differs from the one litigators use. That is the skill we typically think of as “thinking like a lawyer.” Litigators apply the law to the facts to create a persuasive argument. Deal lawyers do it differently. They start with the business deal (their facts – which are always changing) and then figure out which contract concept will best express it. Having this skill is essential in learning to draft or negotiate a contract.

Knowing the translation skill is also essential to learning contract and risk analysis, two other skills essential for negotiating and drafting a contract. We can begin to teach both of these skills in the contracts course.

Contract analysis is not the same as contract interpretation. Interpretation assumes an ambiguity. Contract analysis precedes interpretation. In contract analysis, the lawyer looks at a provision and asks a series of questions, among them: What is its business purpose? Does the provision address it? Does it use the right contract concept?  (Here is where the translation skill comes in.) Is risk allocated properly? What legal issues affect this provision? How can I better protect the client or advance its cause? What is missing from the provision? Only by answering these questions can a lawyer decide what a provision should say.

As to risk analysis, this is a skill we can only introduce to our students. It requires recognizing the risk, assessing it, and knowing how to protect against it. In a contracts course, we can address this skill at a basic level, for example, by demonstrating how representations and warranties are a risk allocation mechanism and how that allocation can be changed, sometimes by a single word. As an aside, this example shows how deal skills build on each other.  By teaching students about risk allocation, we are also teaching them about negotiation and drafting.

Finally, we return to the students’ lack of knowledge about the business world. Because of that lack, students often fail to appreciate the context of a case and the underlying business issues that affected the drafting of a provision. To remedy this, we must discuss these business issues as part of case analysis.

So how do fit all of this into a four-credit course? Much of what I have described is providing context which can be given through out-of-class assignments or discussed when covering cases.

But the course would change. Less time would be devoted to some concepts, such as offer, acceptance, consideration, the parol evidence rule, and unconscionability. It becomes a question of emphasis.

With the extra time, new cases could be added so that students could better understand how contracts use different contract concepts. For example, typically, students learn about representations as misrepresentations and warranties in the context of the UCC. But deal lawyers regularly see these concepts in a different context: joined together for risk allocation purposes in sophisticated contracts such as acquisition agreements, loan agreements, and licensing agreements. Using cases that deal with these concepts would not only teach doctrine, but also give students a look at these concepts in a dynamic context – that is, in use by the parties to memorialize the business deal.

Other cases could be added to provide an opportunity to teach skills. For example, in teaching assignment and delegation, some textbooks use cases where the issue is whether particular contract language acted as both an assignment and delegation. As both the Restatement and UCC have interpretive provisions resolving this issue, it might be more fruitful to assign cases dealing with anti-assignment provisions. After reading the cases, students could try their hands at drafting an enforceable anti-assignment provision – not an easy task.

I do not believe, however, that the contracts course should morph into a drafting course. There is too much else to learn in contracts. Instead, a separate contracts drafting course would be the better way to teach this skill. Pedagogically, teaching contract drafting as soon as possible after the contracts course makes sense. It would solidify students’ understanding of the material in the contracts course, and it would provide students with an essential building block for the material that follows.

All of these changes cannot be made at once. The process will be evolutionary, but changing the contracts course is a must.

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I just saw a wonderful presentation on trends in private equity deal terms, part of Emory's M&A Workshops sponsored by our Center for Transactional Law and Practice.  Two M&A lawyers from Paul Hastings in Atlanta, Frank Layson and Erik Belenky, presented results of a study of 48 private equity acquisitions of public companies signed between January '06 and May '07.  Deal trends for the period reflect a marked shift in bargaining power toward sellers and away from buyers.  No surprise, given the easy financing and wealth of buyers in the market during the sample period.  To the M&A lawyer, these trends may be old news, but we academics don't always get down to (or even near!) the front lines as much as we'd like.  What was especially appealing about this talk was that instead of the standard offering of war stories and impressionistic assessments, they actually had data!  Pie charts and everything!

Interesting trends include the following:

1.  Reverse break-up fees:

74% of the deals contained reverse break-up fees, payable by the buyer for failing to close or failing to perform a material covenant or obligation.  Fees ranged between 1% and 4% of the deal value, and often mirrored the amount of the seller's break-up fee.

An interesting legal question is the interplay between the reverse break-up fee and other affirmative buyer obligations (e.g., best efforts clauses).  Is the fee the equivalent of an option for the seller to walk away from the deal?  Or might there be additional liability for failing to exert best efforts?  See the recent Delaware Chancery Court decision in United Rentals, Inc. v. RAM Acquisition Corp. (Cerberus).

2.  No financing contingencies: 

98% of the deals contained no financing contingency.

3. Financing commitment letters delivered at signing: 

96% of the deals required delivery of commitment letters, with sellers often enjoying either third-party beneficiary status to sue the lender or a provision requiring the buyer-sponsor  to take enforcement action against a breaching financer.

4.  Sponsor guarantees of obligations and covenants of the acquisition vehicle (66% of deals).

5.  Go-shop provisions:

66% of deals contained a go-shop clause, which allows the seller to solicit competing bids  for some period post-signing.

Our next M&A workshop is on February 22.  Emory's own Bill Carney will be debating Chancellor William Chandler on the continuing value of Delaware corporate law.  Also don't forget our Center's conference next May on Teaching Drafting and Transactional Skills:  The Basics and Beyond.  For information on our events and activities, please contact Tina Stark, who directs the Center.

UPDATE:  Steven Davidoff, the newly minted NYT Deal Professor, has a post today on M&A deal points as well.  He looks at 4 recent private equity deals (announced since December, as compared to the not-so-recent deals covered in the study I describe above), and it appears that the credit crunch has not affected deal terms too much.

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This past May I blogged about a proposal to the Professional Development Committee of the Association of American Law Schools for a "Workshop on Transactional Law." Earlier this week, I was invited to serve on the Planning Committee for that Workshop, which is to be held at the Mid-year Meeting of the AALS in 2009.

Transactional law is hot! And I couldn't be more pleased. In addition to this Workshop, Fred recently blogged about Emory's new Center for Transaction Law and Practice, which is hosting its own conference next May on Teaching Drafting and Transactional Skills: The Basics and Beyond.

One of my goals upon entering academe in 1994 was to bring a transactional perspective to my teaching and scholarship. I was inspired by Ronald Gilson's famous article, Value Creation by Business Lawyers: Legal Skills and Asset Pricing, 94 Yale L.J. 239 (1984), and by the AALS Workshop on the Transactional Approach to Law, held on October 13-15, 1994. I hope that this new conference will inspire a new generation of law scholars to take transactions seriously.

With regard to legal scholarship, I would be remiss if I didn't mention my paper (with Brayden King) on Contracts as Organizations. Since posting that paper, I have connected with a number of young scholars who have an interest in the empirical study of contracts, and I look forward to reading more such work in the near future.

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Glomming onto Jennifer's recent post on reforming the corporate law curriculum, I have been remiss in not sooner announcing Emory's new Center for Transactional Law and Practice.  We've hired Tina Stark, a nationally and internationally recognized expert on transactional skills instruction, to head up the Center.  The Center is hosting a conference next May on Teaching Drafting and Transactional Skills:  The Basics and Beyond.  We are currently actively soliciting proposals for the conference.  The deadline for proposals is December 3, 2007.

UPDATE: The deadline has been extended to December 21.

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We like to follow Wal-Mart goings-on here at the Glom.  Usually it's about downward price pressure in specific geographic or product markets that Wal-Mart chooses to enter, whether it's good or bad, and community responses. 

Now an interesting new paper has come out describing another Wal-Mart effect, this time on global environmental governance.  The paper, by Michael Vandenbergh at Vanderbilt, describes how Wal-Mart and other large firms may plausibly be improving global environmental governance by imposing environmental requirements on their suppliers.  Responding to social, economic, and regulatory pressures, large importers are in effect exporting industrial country environmental standards to developing countries via private contract, a move that may help fill regulatory gaps that result from global trade.  An interesting read.

Here's the abstract:

This Article argues that networks of private contracts serve a public regulatory function in the global environmental arena. These networks fill the regulatory gaps created when global trade increases the exploitation of global commons resources and shifts production to exporting countries with lax environmental standards. As critics of trade liberalization have noted, public responses often are inadequate to address the attendant environmental harms. This Article uses empirical data to examine how private contracting regulates firm behavior, focusing on supply-chain contracting. The Article shows that more than half of the largest firms in eight retail and industrial sectors impose environmental requirements on their domestic and foreign suppliers. This contracting, which the Article terms "the new Wal-Mart effect," reduces externalities by translating a complex mix of social, economic, and legal incentives for environmental protection into private contractual requirements. After demonstrating that private environmental contracting is an important part of global environmental governance, the Article examines the efficacy and accountability of this regime. The Article concludes that the private contracting regime often is preferable to the alternatives: lax national and international regulation of firms in many exporting countries, and markets that lack private environmental contracting. Finding much promise in the private contracting regime, the Article concludes by suggesting new strategies for governments, nongovernmental organizations, and firms.

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My light blogging this week is easy to explain: I have been completely immersed in drafting a proposal to the Professional Development Committee of the Association of American Law Schools for a "Workshop on Transactional Law." This project started with a post on "Training Dealmakers in Law School" by Usha Rodrigues. That post inspired me to write a response, which included an off-the-cuff suggestion for a transactional conference (go to the end of the post). Darian Ibrahim followed close on my heels with another post endorsing a conference on transactional law, and we were off and running.

That was last October.

A number of people besides Darian and Usha responded to my suggestion for a conference, and we formed a drafting committee, which met for some preliminaries at the AALS Annual Meeting in January. Progress was slow during winter semester, but the power of deadlines kicked in on Memorial Day, and I have been researching and drafting ever since.

I will submit the proposal to the AALS later today. Here is the first paragraph:

This proposal describes a two-day workshop on transactional law to be held at a Mid-Year Meeting of the Association of American Law Schools ("AALS"). "Transactional law" refers to the various substantive legal rules that influence or constrain planning, negotiating, and document drafting in connection with business transactions, as well as the "law of the deal" (i.e., the negotiated contracts) produced by the parties to those transactions. Transactional law touches many substantive areas of law, but it is most closely identified with bankruptcy, business associations, contracts, commercial law, intellectual property, securities regulation, and taxation. The study of transactional law is attentive to the role of lawyers in consummating business transactions, thus implying some consideration of "transactional skills" – planning, negotiating, and document drafting. While business law clinics have been at the forefront of teaching transactional skills, this workshop will focus on transactional law as part of the non-clinical curriculum and in legal scholarship.

This is a popular idea. In addition to the 11 members of the drafting committee, the proposal has been endorsed by eight AALS Section Chairs or Chairs-Elect.

Thanks to all who participated in the drafting process. Now it's time for the AALS Professional Development and Executive Committees to do the right thing and authorize the workshop.

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