Book Note: “The Three and a Half Minute Transaction: Boilerplate and the Limits of Contract Design”

I keep plugging away, inexorably, to further develop the body of knowledge that makes its way into A Manual of Style for Contract Drafting.

But I’m starting to pay more attention to inertia, that unavoidable fact of my professional life.

Stripped of any delicacy, here’s the exchange I routinely have with different kinds of organizations:

Me:       Your contracts are really bad.

Them:  We don’t care.

That’s the core mystery in what I do: Why contracts are so poorly drafted. And why so many organizations have no interest in doing anything about it once you point that out to them.

I’ve just finished a book that has prompted me to look into inertia more closely: The Three and a Half Minute Transaction: Boilerplate and the Limits of Contract Design. It’s by Mitu Gulati, a professor at Duke Law School, and Robert E. Scott, a professor at Columbia Law School.

Here’s the back-cover text (although we need a new term for that, as my Kindle version doesn’t have a back cover):

Boilerplate language in contracts tends to stick around long after its origins and purpose have been forgotten. Usually there are no serious repercussions, but sometimes it can cause unexpected problems. Such was the case with the obscure pari passu clause in cross-border sovereign debt contracts, until a novel judicial interpretation rattled international finance by forcing a defaulting sovereign—for one of the first times in the market’s centuries-long history—to repay its foreign creditors. Though neither party wanted this outcome, the vast majority of contracts subsequently issued demonstrate virtually no attempt to clarify the imprecise language of the clause.

Using this case as a launching pad to explore the broader issue of the “stickiness” of contract boilerplate, Mitu Gulati and Robert E. Scott have sifted through more than one thousand sovereign debt contracts and interviewed hundreds of practitioners to show that the problem actually lies in the nature of the modern corporate law firm. The financial pressure on large firms to maintain a high volume of transactions contributes to an array of problems that deter innovation. With the near certainty of massive sovereign debt restructuring in Europe, The Three and a Half Minute Transaction speaks to critical issues facing the industry and has broader implications for contract design that will ensure it remains relevant to our understanding of legal practice long after the debt crisis has subsided.

In the coming weeks I’ll be working on my own take on this topic, one that’s more anecdotal but broader. For now, I’ll just note that it’s been a while since I’ve read something that offered such a fresh perspective (for me at least) on what I do.