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Book Chapter

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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 that courts use to resolve ambiguities in boilerplate language. Using the case of NML Capital v. Argentina, this chapter shows how traditional contract doctrine can produce a fertile setting for the growth of contractual arbitrage.


Contracts | Economic History | Law | Law and Economics | Macroeconomics