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2020 Wis. L. Rev. 533 (2020)
Complete Contracts in Finance

handle is hein.journals/wlr2020 and id is 551 raw text is: COMPLETE CONTRACTS IN FINANCE ELISABETH DE FONTENAY* Introduction........................................................................................... 533 I. The Evolution of Financial and Transactional Agreements....... 536 II. Problems in the Enforcement of Incomplete Contracts ............. 540 A. The Theory of Incomplete Contracts .................................. 540 B. How Judges Address Incomplete Contracts ....................... 542 C. The Judicial Preference for Complete Contracts ................ 543 1. Hindsight Bias............................................................... 543 2. Why was the Contract Left Incomplete?....................... 544 3. Complete Contracts in Law and in Finance ............. 545 4. Faith That Sophisticated Parties Can Write Complete Contracts ....................................................................... 545 III. Implications for Contract Drafting and Contract Enforcement.. 547 A . Three Inefficiencies ............................................................ 547 B . E xam ples.............................................................................548 1. Distressed Borrowers .................................................... 548 2. MAE Clauses in M&A.................................................. 550 C . Solutions? ........................................................................... 55 1 Conclusion ............................................................................................ 551 INTRODUCTION When law students question the importance of studying contract law, it may help to point out that a recent contract dispute brought a major economy to its knees, created an international political incident, and prompted popular protests in the streets. The hedge fund Elliott Associates, L.P. single-handedly succeeded in holding up Argentina's sovereign debt restructuring, by litigating for fifteen years over an arcane contract term that had been ubiquitous in sovereign bond indentures for over a century.' Elliott's maneuver is not a unique occurrence-such * Professor of Law, Duke University; defontenay@law.duke.edu. 1. See Renae Merle, How One Hedge Fund Made $2 Billion from Argentina's Economic Collapse, WASH. POST (Mar. 29, 2016), https://www.washingtonpost.com/news/business/wp/2016/03/29/how-one-hedge-fund- made-2-billion-from-argentinas-economic-collapse/. Elliott Associates emerged victorious in its battle with Argentina, when the Second Circuit sided with its proposed interpretation of the pari passu clause in the indenture. See generally NML Capital, Ltd. v. Republic of Argentina, 699 F.3d 246 (2d Cir. 2012). Yet market participants and experts in the industry overwhelmingly disagreed with Elliott's (and the court's) interpretation of the clause. See Mitu Gulati & Robert E. Scott, Foreword: The Three and a Half Minute Transaction:

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