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Variation in Boilerplate: What Does it Mean?

posted by Mitu Gulati

Most of us who have had to read hundreds of commercial contracts for either our jobs as lawyers or for our research have also necessarily read lots of “choice-of-law” provisions. I know I have. But I am also embarrassed to say that I never paid much attention to many of the minor variations in language that frequently show up. For example, whether the clause says that the bond is “governed by New York law” or that its terms are to be “construed in accordance with New York law” is a variation that I’ve seen, but have never given much thought to. But as UNC Law School’s John Coyle points out in a wonderful new article, these small variations in the boilerplate language risk being interpreted as being quite different by a court. And particularly so by a New York court that pays a lot of attention to the text. Before going further, I should note here that John’s article showing that contract language that is assumed to be boilerplate is often not really all that boilerplate follows in the tradition of another super article out of UNC, this one by slipster Mark Weidemaier, appropriately titled “Disputing Boilerplate”.

The basic empirical inquiry that John engages in his article (“Choice-of-Law Clauses in U.S. Bond Indentures”, forthcoming in the peer reviewed Capital Markets Law Journal) has two parts. First, along the lines of Mark’s “Disputing Boilerplate” article, he uses a substantial sample of bonds (over 300) to document the extent of the variation. And second, he interviews senior lawyers to ask whether they think the small variations are supposed to signify different preferences (they are notindeed, in most cases, the lawyers don’t seem to have even been aware that the variation was meaningful). The second finding is particularly surprising and interesting, given that John is able to point to multiple actual court cases where these differences in language have turned out to be meaningful.

The hard question posed by the foregoing, to me, is the why?  Why is it that highly paid and highly sophisticated counsel are unaware of such basic risks that they are subjecting their clients to? And that too risk that they could easily fix.  One answer would be that these variations in language are actually meaningful in terms of representing different bargains and risk allocations between the parties—and what the lawyers say to academic interviewers such as John is no more than the proverbial “cheap talk”.  An alternate answer, and one that I’m more sympathetic to, is that the variation is the product of random mutation in the drafting process. If you are interested in going further down this rabbit hole, Marcel Kahan and Shmuel Leshem have a splendid new article taking the former position. Bob Scott, Steve Choi and I have a piece taking the latter view that I’d like to think is equally good, but I’m obviously biased. I should note though that the Kahan-Leshem and Scott-Choi-Gulati argument is in the context of the pari passu clause in sovereign bond instruments. Finding random mutations (and I’m assuming that that’s what they are) in the contract language in bonds that are rarely litigated (sovereign debt) is one thing; finding such mutations in the much more frequently litigated US corporate bond indenture context is another matter altogether.

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