The Black Hole Problem in Commercial Boilerplate

65 Pages Posted: 8 Sep 2016 Last revised: 14 Dec 2016

See all articles by Stephen J. Choi

Stephen J. Choi

New York University School of Law

Mitu Gulati

University of Virginia School of Law

Robert E. Scott

Columbia University - Law School

Date Written: November 25, 2016


Rote use of a standard form contract term can erode its meaning, a phenomenon made worse when the process of encrustation introduces various formulations of the term. The foregoing process, when it occurs, weakens the communicative properties of boilerplate terms, leading some terms to lose much, if not all, meaning. In theory, if a clause is completely emptied of meaning through this process it can create a contractual “black hole.” The more frequent and thus potentially more pervasive problem arises when, as the term loses meaning, random variations in language appear and persist, resulting in what we term a “grey hole.” The question that follows is what interpretive strategy courts should use when parties exploit these variations, persuading a court to adopt an interpretation of the grey hole term that (a) surprises the market that previously had disregarded the term and (b) results in an interpretation that the market disavows. Traditional doctrine holds that even if the court errs, parties have an incentive to revise the standard language to exclude the aberrant interpretation.  But what if the assumptions about the costs and motivations to revise this type of boilerplate are wrong? We seek to gain purchase on this question with a study of the pari passu clause, a standard provision in sovereign debt contracts that almost no one seems to understand.  This clause gained fame in 2011 because of a series of court decisions in New York arguably misinterpreting a particular variation of the clause. Even though the courts’ interpretation put at risk a multi-trillion dollar debt market, meaningful revisions to the language of the boilerplate term did not begin to appear until late 2014. Market forces, in other words, worked very slowly to remedy a major systemic problem, leading to considerable costs. We ask, therefore, whether courts might not do more to avoid the problem at the front end rather than depend on market forces to correct court error at the back end.

Keywords: Contract Law, Contract Interpretation, Boilerplate, Sovereign Debt

JEL Classification: F34, H63, H81, K12

Suggested Citation

Choi, Stephen J. and Gulati, Mitu and Scott, Robert E., The Black Hole Problem in Commercial Boilerplate (November 25, 2016). Columbia Public Law Research Paper No. 14-527, Columbia Law and Economics Working Paper No. 547, NYU School of Law, Public Law Research Paper No. 16-40, NYU Law and Economics Research Paper No. 16-38, Available at SSRN:

Stephen J. Choi

New York University School of Law ( email )

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


Mitu Gulati (Contact Author)

University of Virginia School of Law ( email )

580 Massie Road
Charlottesville, VA 22903
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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