Who is the intended audience of a contract? A court, who may be called upon to resolve a dispute, is one audience. Another is commercial communities, who punish breach with reputational sanctions, per the longstanding literature on informal enforcement. This Article shows how modern contracts have more intended audiences than courts and communities: instead, they are drafted with many third parties in mind, including regulators. When contracts speak to many audiences, they gain multiple layers of meaning, giving them “contractual depth.” This Article draws upon a series of novel interviews with dealmakers—law firm partners, general counsel, and executives—in a wide range of industries to provide preliminary evidence on the prevalence of contractual depth in the modern economy.
Contractual depth suggests three potential contributions to contract law and theory. First, it sheds new light on the sources of contractual incompleteness. By introducing third party audiences as a constraint on parties’ ability to distill their intentions into contract terms, this Article provides grounds for expanding existing frameworks for understanding incomplete contracts. Second, contractual depth suggests that the renegotiation of agreements may be “sticky” (i.e., changing terms ex post may be harder than we typically assume). This has important consequences for our understanding of economic organization. Finally, this Article offers practical guidance to contract drafters about how to mitigate any challenges that result through new approaches to contract design.