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.
Stephen J. Choi, G. Mitu Gulati & Robert E. Scott,
Variation in Boilerplate: Rational Design or Random Mutation?,
NYU School of Law Public Law Research Paper No. 16-34; NYU Law & Economics Research Paper No. 16-30; Columbia Public Law Research Paper No. 14-525; Columbia Law & Economics Working Paper No. 548
Available at: https://scholarship.law.columbia.edu/faculty_scholarship/1996