Variation in Boilerplate: Rational Design or Random Mutation?

46 Pages Posted: 24 Aug 2016 Last revised: 3 Apr 2017

Stephen J. Choi

New York University School of Law

G. Mitu Gulati

Duke University School of Law

Robert E. Scott

Columbia University - Law School

Date Written: March 21, 2017

Abstract

Standard contract doctrine presumes that sophisticated parties choose their terminology carefully because they want courts or counterparts to understand what they intended. The implication of this “Rational Design” model of rational behavior is that courts should pay careful attention to the precise phrasing of contracts. Using a study of the sovereign bond market, we examine the Rational Design model as applied to standard-form contracting. In NML v. Argentina, federal courts in New York attached importance to the precise phrasing of the boilerplate contracts at issue. The industry promptly condemned the decision for a supposedly erroneous interpretation of a variant of a hoary boilerplate clause. Utilizing data on how contracting practices responded to the decision, we ask whether the market response indicates that parties in fact intended for the small variations in their contract language to embody a particular meaning. We find the data supports a model closer to random mutation rather than rational design.

Keywords: contract, sovereign debt, boilerplate, standard form, Pari Passu

JEL Classification: F34, H63, H81, K12

Suggested Citation

Choi, Stephen J. and Gulati, G. Mitu and Scott, Robert E., Variation in Boilerplate: Rational Design or Random Mutation? (March 21, 2017). NYU School of Law, Public Law Research Paper No. 16-34; NYU Law and Economics Research Paper No. 16-30; Columbia Public Law Research Paper No. 14-525; Columbia Law and Economics Working Paper No. 548. Available at SSRN: https://ssrn.com/abstract=2827189 or http://dx.doi.org/10.2139/ssrn.2827189

Stephen J. Choi

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States

Gaurang Mitu Gulati (Contact Author)

Duke University School of Law ( email )

210 Science Drive
Box 90362
Durham, NC 27708
United States

Robert E. Scott

Columbia University - Law School ( email )

435 West 116th Street
New York, NY 10025
United States
212-854-0072 (Phone)

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