Beyond Price and Boilerplate: The Hidden World of Precedent Terms in Contract Law

Vincent Buccola and David Hoffman have broken important ground in contract theory

In their groundbreaking paper "Precedent Terms," Vincent Buccola and David Hoffman have identified a fundamental blind spot in contract theory that has profound implications for how we understand commercial dealmaking. For decades, legal scholars have operated under what they call an "implicit binary" that divides all economically meaningful contract terms into just two categories: those that are negotiated and priced, and those that are standardized boilerplate.

Buccola, Vincent S.J. and Hoffman, David A., Precedent Terms (May 21, 2025). University of Chicago Law School, Coase-Sandor Institute for Law & Economics Research Paper No. 25–20, U of Penn, Inst for Law & Econ Research Paper No. 25-09, Available at SSRN: https://ssrn.com/abstract=5263762 or http://dx.doi.org/10.2139/ssrn.5263762

This binary view, while theoretically elegant, fails to explain many puzzling realities that practicing lawyers encounter daily. Why do sophisticated parties in trillion-dollar markets spend enormous sums fighting over contract provisions that seemingly don't affect price? How can we reconcile the standard economic model of contracting with the genuine emotions—triumph and dismay—that negotiators experience when securing or losing particular terms? And why do rueful observations about "unreasonable" contract terms persist across markets, even when all participants are sophisticated repeat players who should theoretically prevent such outcomes?

Buccola and Hoffman propose a revolutionary answer: there exists a third category of "precedent terms"—economically meaningful provisions that vary from contract to contract but that do not affect price. These terms emerge when parties cannot effectively price marginal variations but standardization would sacrifice too much value. Under such circumstances, parties anchor their negotiations on previously struck deals, using the past as precedent in a manner reminiscent of common law judicial reasoning.

Through extensive interviews with participants in the leveraged loan market—a $2 trillion ecosystem where precedent terms amount to "a large fraction of the variation"—the authors demonstrate that this phenomenon is not merely theoretical but central to how sophisticated commercial contracts actually get made.

Although not it’s a corporate law/governance paper, it’s corporate law adjacent and could be extended to important corporate law issues like M&A deal terms. So let’s tackle it.