My sense is that nobody running baseball wants steroids, largely because there is no team sport in which individual records mean so much. 61. 714. 104. 56.

You’re exactly right—the morals clause seems to permit a team to terminate a player only for misconduct committed during the term of the contract. Assuming that’s true, hasn’t the risk of undisclosed past steroid use (or any past, undisclosed misconduct that might rise to the level of termination if committed during the term of the contract) been allocated to the team? And, as AF notes, isn’t that conclusion particularly strong here, where the league agreed that the positive steroid test in question would not be disclosed and would not result in any disciplinary action? The team, of course, is free to investigate any possible pre-contract misconduct and act accordingly (ie, not sign the player).

I read that as saying there would be legal risk to A-Rod if the Yankees really seriously wanted to lose his services, which I doubt.

So, the risks of the contingency were allocated through the (heavily negotiated) collective bargaining agreement and standard player contract.

Through his union, A-Rod has already negotiated an explicit and specific agreement as to the effect of failing the 2003 steroid test.

This is not a case of an incomplete contract. The consequences of this exact contingency have already been resolved in a separate agreement.

On the available facts, there’s no justification for assuming that the steroids point wasn’t negotiated, so no need to invoke economistic jargon concepts such as in the expression “negotiating on this term would raise the transactional costs of completing the agreement.” In fact, the transactional costs model begs the question of how to quantify the “costs” of having the opposite side think ever after that you are a jerk, even if you do succeed in your negotiation. Relationships and reputation have a way of persisting long beyond negotiating a deal, and the repercussions of pressing your case too obnoxiously in a negotiation can quickly enter the realm of counterfactuals (e.g., deals or concessions that are never offered to you in the future).

Another way in which it can be misleading to judge the “completeness” of contracts from reading the text alone (and, a fortiori, from reading hearsay about the text) is that a decontextualized reading often ignores factors that may influence a party not to enforce the contract, even when it’s entitled to. Sometimes these factors are already evident during the negotiation phase. E.g., as we used to remind ourselves at one of my former companies, “it’s not nice to sue your customer.” When there isn’t even bargaining power, you put some provisions in only because you hope that the other side will comply with them, not because you think you’ll have any leverage if there’s a breach. That may not be apposite in the A-Rod case, I admit.

1. All I read was your quote: “no language about steroids in the contract.” That says literally to me there is no language about steroids in the contract. That means we’re dealing in two levels of hearsay about what the contract actually says. The remainder of the sentence says “that would put Rodriguez at risk of losing money.” From that, arguably, we can infer that somebody looked at the whole contract and thinks there’s nothing at all that puts him at risk of losing money, but presently all we know is that there’s nothing about STEROIDS that put him at risk. Pardon my anality. I’ve just been around a long time and don’t take this stuff at face value until I have seen the whole contract.

2. I’m not sure I understand how #2 fits my alternative. If the Yankees say: “Alex, we want a provision in here that says you warrant you never used steroids.” Alex responds, “no, I refuse to make such a legal warranty, nor will I discuss the issue with you. You will simply have to take your chances on that one.” That’s not a frustration issue – the parties have explicitly bargained the issue out of the legal domain. Nor is there any fraud or misrepresentation. Hence, in this scenario, the Yankees have done as much as they can to create the legal model they want in the contract, realize there’s nothing more they can do, and make a business decision to accept the risk. It is what it is.

The point of the linked sufficient reason post is that we as lawyers seem to have a hard-wired teleology about contracts, beginning with the rational actor inspired notion that there is some notionally complete contract, revised post Herbert Simon into the view that boundedly rational actors turn complete contracts into incomplete contracts as a result of their inability to see all the possibilities.

I start with the idea that all contracts are incomplete by their nature as models of complex reality, just as all models are incomplete. Some are more incomplete than others. I thereby arrive at the same fundamental conclusion as you: there is indeed an irreducibility to the exercise. I think I feel less inclined, however, to justify, within the law, why the contract failed to address ALL contingencies, because I start with the assumption that there are only so many it will catch to begin with.

Or more succinctly: not every failure to cover a contingency is a screw-up.

W/r/t the possibility that the Yankees asked A-Rod for a clause and were turned down, that seems legally the same as possibility #2 that I mentioned.

Since you mentioned that I missed “at least” two possibilities, perhaps you could lay them out?

Without a union contract, A-Rod’s 2003 steroid use would have come to light in a different way, with different contractual implications.

#1: Yankees: “Alex, we want a provision in here about steroid use.”

Alex: “No.”

#2: There is a “moral turpitude” or “embarrassing activities” clause but it doesn’t mention steroids, in which case the issue would be interpretation, not extra-contractual defenses.

On the broader issue of trying to reconstruct “what went wrong? in complex contracts, see this post.