Law Commons^™

Contractual Landmines, Robert E. Scott, Stephen J. Choi, Mitu Gulati

Faculty Scholarship

Conventional wisdom is that the standardized boilerplate terms used in large commercial markets survive unchanged because they are an optimal solution to the contracting problems facing parties in these markets. As Smith and Warner explained, “harmful heuristics, like harmful mutations, will die out.” But an examination of a sample of current sovereign bond contracts reveals numerous instances of harmful landmines — some are deliberate changes to standard language that increase a creditor’s nonpayment risk, others are blatant drafting errors, and yet others are inapt terms that have been carelessly imported from corporate transactions. Moreover, these landmines differ from each other …

Debunking The Efficacy Of Standard Contract Boilerplate: Part Iv, David Spratt

Articles in Law Reviews & Other Academic Journals

We have belabored the archaic and prohibited use of "said" as a synonym for "the." But this paragraph needs more work. First, the phrase "irrespective of the fact that" is wordy and could be replaced with the plain language alternative of "even though." Second, "one or more of the parties now is, or may become, a resident of a different state" also could be streamlined. The phrase is easy enough to understand but cut to the chase. Replacing this phrase with "either party now or later resides in a different state" does the trick.

But We Didn’T Agree To That!: Why Class Proceedings Should Not Be Implied From Silent Or Ambiguous Arbitration Clauses After Lamps Plus, Inc. V. Varela, Andrea Demelo Laprade

Catholic University Law Review

The application of class arbitrability when a contract is silent on the matter remains a mystery. The Supreme Court has not clarified its stance on class arbitrability and preemptive effects of the Federal Arbitration Act on state law when applied to determine if class arbitrability is available. The purpose of this Paper is to address how the Lamps Plus v. Varela decision created more confusion about the question of class arbitrability. It argues that the failure to address the particulars of the availability of class arbitration will perpetuate litigation on this issue. This Paper suggests that the FAA’s purpose supports …

Contract Schemas, Roseanna Sommers

Articles

This review draws on the notion of “contract schemas” to characterize what ordinary people think is happening when they enter into contractual arrangements. It proposes that contracts are schematically represented as written documents filled with impenetrable text containing hidden strings, which are routinely signed without comprehension. This cognitive template, activated whenever people encounter objects with these characteristic features, confers certain default assumptions, associations, and expectancies. A review of the literature suggests that contract schemas supply (a) the assumption that terms will be enforced as written, (b) the feeling that one is obligated to perform, and (c) the sense that one …

Improve Recitals And Consideration Clauses With Plain Language, David Spratt

Articles in Law Reviews & Other Academic Journals

As used in a "WHEREAS" clause, the term "whereas" simply means "considering that" or "that being the case." There is no legal effect to the word "whereas." It, like many other words used in standard contract boilerplate, is left over from some long-forgotten era of legal writing when lawyers used big words and legalese to impress clients with their intelligence and to justify their bills. These times have (or at least should have) passed. Today, documents must be accessible to those who use them: in most cases the clients for whom such documents are drafted.

Investigating The Contract Production Process, Stephen J. Choi, Robert E. Scott, G. Mitu Gulati

Faculty Scholarship

Contract law and theory have traditionally paid little attention to the processes by which contracts are made. Instead, contracts among sophisticated parties are assumed to be full articulations of the desires of the parties; whatever the process, the outcome is the same. This article compares sovereign debt contracts from US and UK firms, with different production processes, that are trying to do the same thing under very similar legal regimes. We find that that the production process likely matters quite a bit to the final form that contracts take.

Debunking The Efficacy Of Standard Contract Boilerplate: Part I, David Spratt

Articles in Law Reviews & Other Academic Journals

Many contracts start with an introductory paragraph like this one: THIS AGREEMENT is made and entered into said 5th day of June, 2020, by and between JOHN JONES (hereinafter referred to as "Jones") and MARY SMITH (hereafter referred to as "Smith"), hereinafter referred to together as "the parties." Where do I find my red pen? There are so many problems with this introduction, I might run out of ink.

Innovation Versus Encrustation: Agency Costs In Contract Reproduction, Stephen J. Choi, Mitu Gulati, Robert E. Scott

Faculty Scholarship

This article studies the impact of exogenous legal change on whether and how lawyers across four different deal types revise their contracts’ governing law clauses in order to solve the problem that the legal change created. The governing law clause is present in practically every contract across a wide range of industries and, in particular, it appears in deals as disparate as private equity M&A transactions and sovereign bond issuances. Properly drafted, the clause increases the ex ante economic value of the contract to both parties by reducing uncertainty and litigation risk. We posit that different levels of agency costs …

Contractual Arbitrage, Stephen J. Choi, G. Mitu Gulati, Robert E. Scott

Faculty Scholarship

Standard-form contracts are likely to be incomplete because they are not tailored to the needs of particular deals. In an attempt to reduce incompleteness, standard-form contracts often contain clauses with vague or ambiguous terms. Terms with indeterminate meaning present opportunities for strategic behavior well after a contract has been executed. This linguistic uncertainty in standard-form commercial contracts creates an opportunity for “contractual arbitrage”: parties may argue ex post that the uncertainties in expression mean something that the contracting parties did not contemplate ex ante. This chapter argues that the scope for contractual arbitrage is a direct function of the techniques …

Contractual Communication, Lawrence B. Solum

Georgetown Law Faculty Publications and Other Works

In this Response, I will investigate the foundations of both shared and unshared meaning in legal communication. Part I takes a step back from contractual communication and offers a preliminary sketch of a general model of legal communication; the sketch draws on speech act theory and the work of Paul Grice, extending and modifying many of the insights developed by Kar and Radin. Part II turns to contractual communication, differentiating distinct “situations of contractual communication” and interrogating Kar and Radin’s Shared Meaning Analysis. Part III interrogates Kar and Radin’s distinction between “contract” and “pseudo-contract.” The conclusion of the Response briefly …

One-Legged Contracting, Ian Ayres, Gregory Klass

Georgetown Law Faculty Publications and Other Works

This response to Robin Bradley Kar & Margaret Jane Radin, Pseudo-Contract and Shared Meaning Analysis, 132 Harv. L. Rev. 1135 (2019), makes three broad points. It criticizes as arbitrary and essentializing Kar and Radin’s insistence of shared meaning as the core of contracting. It argues that even if shared meaning were the sine qua non of contracting, their proposal fails to achieve it because it does not assure that the terms would be cooperatively communicated. And it argues that their proposed enforcement standard would in practice severely limit freedom of contract and likely reduce consumer welfare. There is a …

Boilerplate And Party Intent, Gregory Klass

Georgetown Law Faculty Publications and Other Works

It is commonly recognized that parties often do not read or understand contract boilerplate they agree to, and that such parties might not intend all the terms in it. Less often noticed are decisions that favor boilerplate over evidence of the parties’ contrary intent for the very reason that it is boilerplate. This article discusses that phenomenon. It identifies decisions in which courts favor boilerplate terms over other evidence the parties’ intent because it is boilerplate, discusses the rules that explain those outcomes, and examines the reasons behind the rules.

A contractual writing, whether individually negotiated and drafted or boilerplate, …

The Strategy Of Boilerplate, Robert B. Ahdieh

Robert B. Ahdieh

Boilerplate can be exciting. It is this, perhaps hard-to-swallow, proposition that the present analysis attempts to convey. Particularly in invoking the work of Thomas Schelling on the role of focal points in coordination games, it offers what can be characterized as a "strategic" theory of boilerplate, in which boilerplate plays an active, even aggressive, role.

Contrary to the relatively inert quality of boilerplate implied by conventional treatments in the legal literature, boilerplate may serve essential signaling and coordination functions in contract bargaining. In appropriate circumstances, its proposed usage may be a valuable weapon in the arsenal of a bargaining party, …

Boilerplate’S False Dichotomy, James Gibson

Law Faculty Publications

The argument against enforcing boilerplate contracts (contracts that no one reads) seems clear. Indeed, if this were a court case we would say that the jury is in; the evidence against boilerplate is overwhelming. Yet the judge has yet to render judgment. Courts continue to enforce boilerplate terms, and even those scholars who have exposed boilerplate as an emperor with no clothes are reluctant to gaze upon its nakedness and condemn its use.

This reluctance originates in an assumption that pervades the boilerplate debate—namely, that courts and commentators alike view boilerplate as necessary to the modern transaction. When asked to …

The Importance Of Being Standard, Anna Gelpern

Georgetown Law Faculty Publications and Other Works

Contract standardisation in the sovereign debt market saves time and money in preparing documents and endows widely-used terms with a shared public meaning, which in turn saves investors the costs of acquiring information, facilitates secondary market trading and reduces the scope for mistakes in the judicial interpretation of contract terms. Sovereign debt issuers and investors claim to value standardisation and list it as an important contractual objective. Issuers generally insist that their bond contracts are standard and reflect market practice. Variations from past practice and market norm must be explained in disclosure documents and through market outreach. Standardisation is not …

The Black Hole Problem In Commercial Boilerplate, Stephen J. Choi, G. Mitu Gulati, Robert E. Scott

Faculty Scholarship

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 …

Liberalism’S Fine Print: Boilerplate’S Allusion To Human Nature, Kenneth K. Ching

Marquette Law Review

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Variation In Boilerplate: Rational Design Or Random Mutation?, Stephen J. Choi, G. Mitu Gulati, Robert E. Scott

Faculty Scholarship

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 …

Intuitive Formalism In Contract, Tess Wilkinson-Ryan

All Faculty Scholarship

This Article starts with the proposition that most American contracting is consumer contracting, posits that consumer contracting has particular and even peculiar doctrinal features, and concludes that these features dominate the lay understanding of contract law. Contracts of adhesion constitute the bulk of consumer experience with contract law. It is not hard to see that someone discerning the nature of contract law from a sample composed almost entirely of boilerplate terms and conditions would come quickly to the conclusion that contract law is highly formal.

Within the realm of potentially enforceable deals (i.e., those that are supported by consideration and …

Regulation Through Boilerplate: An Apologia, Omri Ben-Shahar

Michigan Law Review

You have to salute Peggy Radin. She has said what others who agree with her have for so long been hesitant to utter out loud: the fine print is not a contract. There is no agreement to it, no real consent, not even “blanket assent.” It is nothing but paperwork and should have the legal fortune of junk mail. Those lengthy, unreadable pages with terms and conditions that come prepacked with consumer products or that demand to be clicked (“We Accept”) on computer screens — does anyone really think that they contain arrangements that people knowingly agreed to? How is …

Mutual Assent, Normative Degradation And Mass Market Standard Form Contracts--A Critique Of Boilerplate: The Fine Print, Vanishing Rights And The Rule Of Law, Part I, Steven Feldman

Steven Feldman

Analyzing a difficult subject that pervades contract law and which is vital to the national economy, many scholars have written about boilerplate contracts. With her 2013 book, Boilerplate: The Fine Print, Vanishing Rights And The Rule Of Law, Professor Margaret Jane Radin weighs in on the discussion, rejecting utilitarian-welfare notions that economic efficiency can justify the extensive use of mass market boilerplate. In her main contention, Radin argues that mass market standard form contracts improperly degrade consumer rights in the area of voluntary consent (herein “normative degradation”).

Although her book has achieved great renown, receiving high praise from prominent commentators, …

Expanded Merchant Tort Liability, Democratic Degradation, And Mass Market Standard Form Contracts—A Two-Part Critique Of Boilerplate: The Fine Print, Vanishing Rights, And The Rule Of Law (Part Ii), Steven W. Feldman

Cleveland State Law Review

Analyzing a difficult subject that pervades contract law and which is vital to the national economy, many scholars have written about boilerplate contracts. With her 2013 book, Boilerplate: The Fine Print, Vanishing Rights and the Rule of Law, Professor Margaret Jane Radin weighs in on the discussion. In a complement to existing contract remedies against abusive boilerplate, she proposes a new tort that she calls “intentional deprivation of basic legal rights.” She also identifies another new tort theory that deems abusive boilerplate to be a defective “product” under the law of products liability.

Radin further contends that these merchant practices …

Contract As Pattern Language, Erik F. Gerding

Erik F. Gerding

Christopher Alexander’s architectural theory of a "pattern language" influenced the development of object-oriented computer programming. This pattern language framework also explains the design of legal contracts. Moreover, the pattern language rubric explains how legal agreements interlock to create complex transactions and how transactions interconnect to create markets. This pattern language framework helps account for evidence, including from the global financial crisis, of failures in modern contract design.

A pattern represents an encapsulated conceptual solution to a recurring design problem. Patterns save architects and designers from having to reinvent the wheel; they can use solutions that evolved over time to address …

Sovereign Debt And The Three And A Half Minute Transaction: What Sticky Boilerplate Reveals About Contract Law And Practice, Andrea Boyack

Faculty Publications

The Three and a Half Minute Transaction: Boilerplate and the Limits of Contractual Design, by Mitu Gulati and Robert E. Scott, is a cautionary tale about modern legal practice where the protagonist is the standard sovereign debt contract. The book discloses an undeniable flaw in sovereign bond boilerplate (the widely used pari passu clause) that, in spite of expensive, sophisticated lawyering, perpetuates a risky disconnect between party intent and contract terms. The fact that boilerplate terms persist even in elite sovereign-lending practices suggests that the problem of over-reliance on standard form language is ubiquitous.When contract terms diverge from client risk …

Book Review: The Three And A Half Minute Transaction: What Sticky Boilerplate Reveals About Contract Law And Practice, Andrea J. Boyack

Andrea J Boyack

This review situates Gulati & Scott’s findings with respect to sovereign debt instruments and the contracting process in the context of a legal profession on the brink of change. Gulati and Scott’s book addresses the inexplicable failure of lawyers to respond to a sovereign debt litigation outcome by clarifying a boilerplate provision after an adverse judicial interpretation. Their fascinating study of boilerplate in sophisticated transactional legal practice is timely and compelling both in terms of the specific story it tells, namely the persistence of the pari passu clause in sovereign debt instruments, as well as its broader implications: Structural flaws …

Vertical Boilerplate, James Gibson

Law Faculty Publications

Despite what we learn in law school about the “meeting of the minds,” most contracts are merely boilerplate—take-it-or-leave-it propositions. Negotiation is nonexistent; we rely on our collective market power as consumers to regulate contracts’ content. But boilerplate imposes certain information costs because it often arrives late in the transaction and is hard to understand. If those costs get too high, then the market mechanism fails. So how high are boilerplate’s information costs? A few studies have attempted to measure them, but they all use a “horizontal” approach—i.e., they sample a single stratum of boilerplate and assume that it represents the …

Contract As Pattern Language, Erik F. Gerding

Publications

Christopher Alexander’s architectural theory of a "pattern language" influenced the development of object-oriented computer programming. This pattern language framework also explains the design of legal contracts. Moreover, the pattern language rubric explains how legal agreements interlock to create complex transactions and how transactions interconnect to create markets. This pattern language framework helps account for evidence, including from the global financial crisis, of failures in modern contract design.

A pattern represents an encapsulated conceptual solution to a recurring design problem. Patterns save architects and designers from having to reinvent the wheel; they can use solutions that evolved over time to address …

Boilerplate And Economic Power In Auto-Manufacturing Contracts, Omri Ben-Shahar, James J. White

Book Chapters

This chapter examines the boilerplate contracts used by auto makers to procure parts from suppliers. It identifies drafting and negotiation techniques that are used to secure advantageous terms. It also explores some prominent specific arrangements as evidence that firms with bargaining power are exploiting their position to dictate self-serving but inefficient terms. Finally, it shows how standard contractual clauses solve the problem of ex-post hold-up by suppliers.

Preface: Or: A Boilerplate Introduction, Omri Ben-Shahar

Book Chapters

It is tempting to open this volume with yet another "boilerplate" salute to the challenge that standard-form contracts pose for contract law doctrine. You may have seen many tributes to this fundamental problem. Ifi were to offer my own variation on this familiar introduction, I would have perhaps tried to come up with an original spin to induce you to read forward another paragraph or two. I would probably have talked about a major divide within contract law between the "law of negotiations" and "product regulation." The former is the body of doctrines that determine the legal consequences of bargaining …

The Strategy Of Boilerplate, Robert B. Ahdieh

Faculty Scholarship

Boilerplate can be exciting. It is this, perhaps hard-to-swallow, proposition that the present analysis attempts to convey. Particularly in invoking the work of Thomas Schelling on the role of focal points in coordination games, it offers what can be characterized as a "strategic" theory of boilerplate, in which boilerplate plays an active, even aggressive, role.

Contrary to the relatively inert quality of boilerplate implied by conventional treatments in the legal literature, boilerplate may serve essential signaling and coordination functions in contract bargaining. In appropriate circumstances, its proposed usage may be a valuable weapon in the arsenal of a bargaining party, …