In 2020, Serta Simmons and a bare majority of its lenders exploited long-dormant provisions in a standard leveraged loan agreement to subordinate the remaining creditors. The maneuver was decried as "creditor-on-creditor violence" and ultimately rejected by the Fifth Circuit. Contract theory tells us what should have happened next. In a sophisticated, multi-trillion-dollar market, so costly a flaw should have been swiftly repaired. It was not. The standard form was patched at the surface, and the language that made Serta possible remains in place. This Article explains why. Markets, we argue, police standardized contracts only at the surface, the layer practitioners call "what is market", while language at deeper levels of the documentation drifts unattended. We call such instruments contract artifacts. That is, contracts whose surface has hardened into apparent fixity while mistakes, obsolete provisions, and subversive accretions accumulate below the market's ceiling of attention. Drawing on interviews with more than fifty practitioners, we apply the theory to the leveraged loan market and the rise of liability management transactions. The groundwork for the next Serta is already in the standard form.

Chapter Twelve explores further into the M&A world to better understand how the network of elite M&A lawyers engineers contract change. We know from the prior chapter that the M&A bar operates differently, and more effectively, in responding to the detection of landmines in the standard package of terms than in the public bond context. The chapter explores how M&A guru, Glenn West, and other elders in the M&A market coordinate to repair landmines such as the “fraud carve out” clause. Unlike the sovereign debt world, the M&A bar (and particularly its private equity subset) has developed a network to build connections among a group of elite lawyers from different firms that enables landmines to be examined, studied, and then, for the most part, repaired much faster than in other markets.

There is a paradox in commercial contracting: Standardization makes possible production efficiencies but at the cost of contracts that contain “landmines”—loopholes that can be used strategically to gain litigation advantage when the transaction collapses. When standard contracts are traded in large liquid markets, the landmines in these contracts can become exponentially difficult to modify in order to keep the contract “market” and allow for a quick resale—producing a phenomenon the book labels “contract as artifact.” Supported by interviews with over two hundred market experts and an empirical examination of multiple commercial markets, the book’s claim is that landmines are ubiquitous in all markets in which transactions use standardized terms. Yet all markets are not the same. In the M&A market, there is no active secondary market to transform standard form contracts into artifacts. Here, problem contracts are more readily identified and repaired by landmine entrepreneurs. Landmines are more persistent and costly in large liquid markets such as sovereign debt and leveraged loans. The result is substantial costs incurred in disputes over the restructuring of bonds and creditor priorities, costs that could be avoided by the ex ante repair of landmine-infected contracts. Here, we see the main themes in the book realized: guru lawyers propose new ways of exploiting landmines in the standard contract while novice drafters can only insert marginal provisions that fail to deter these efforts. In the absence of dramatic shocks to the market, deeply embedded terms in the artifact contract repel major changes to the documentation.

Chapter Thirteen investigates syndicated leveraged loans that fall along the continuum between one-off bespoke contracts and public bonds. These instruments are tradable, albeit the markets for them are not as thick as those for public bonds. In addition, because the debts are secured and the loans are high yield, presumably greater attention is paid to contract terms than in the sovereign bond world. So, in this yet different world from the ones examined before, the authors ask about the presence of landmines and their repair. The unearthed story is different from any of those already studied. To be sure, there are landmines and there are coordinated (but ultimately unsuccessful) efforts to repair them. But, unlike the other markets, this is a world where there is a thriving business in the active pursuit of landmines by highly compensated lawyers whose clients are seeking to restructure “sacred” creditor priorities. The inability of market players to eliminate the embedded loopholes in the original debt contracts leads to costly reliance on lawyers to find creative ways of restructuring the contract so as to favor one group of creditors over others.

Chapter Eleven studies landmines in merger and acquisition (M&A) deals. Landmines likely exist in all types of contracts from the bespoke to the boilerplate, but they manifest themselves in different ways. M&A deals fit somewhere between the theoretical ideal of the pure bespoke contract and the boilerplate of an actively traded bond instrument. This is because most M&A deals have a combination of terms that are specific to the deal in question and terms that are borrowed from prior M&A deals. To examine this in-between space, the book asks how M&A contracts behave in comparison to public company bond deals when a landmine common to both types of documents is detected. M&A agreements do have landmines, and the correction process is slow, but the authors’ case study finds that they get corrected more effectively than in the bond market.

Having documented the existence and persistence of landmines in sovereign bond contracts, Chapter Nine asks whether they are unique to the world of sovereign debt and its particular types of agency costs. At the opposite end of the thick liquid market, such as that for sovereign bonds, is the classic one-off or “bespoke” contract. Traditional theory assumes that these bespoke transactions are individually negotiated and designed and thus are free from landmines. That conception is likely wrong in most cases because few, if any, contracts are drafted on a blank piece of paper with fresh clauses. Even in so-called bespoke contracts, the document is typically constructed out of bits and pieces from precedent. And to the extent that precedent fits imperfectly, and the drafting lawyers don’t fully understand the differences in contexts, there is the possibility for landmines. Litigation over the continuing use of ambiguous and undefined terms in clauses purporting to exclude “consequential damages” illustrates the issue.

Chapter Six asks: What do market actors mean when they refer to contract provisions as “boilerplate”? The typical understanding is that the term refers to provisions that are identical across contracts. But that is not what the interviews revealed. Market actors have a broader conception of boilerplate: a range of formulations of a term can exist in the market, look similar on first glance, and yet have key wording differences. In the interviews, gurus repeatedly invoked “the gravitational pull of the standard form”: even though the wording of a term varies across contracts in the market, the contract is “market” as long as the basic form of the terms follows a known contractual structure as understood generally by market participants. The chapter explores the implications of this broader conception of boilerplate. The word “artifact” best describes this conception of a standard form contract as an ossified form whose core cannot be changed but that can be modified around the margins. The “contract as artifact” perspective helps understand the phenomenon of landmines. Lawyers are hesitant to change terms that are within the core artifact portion of the contract even if circumstances have rendered the meaning of the term contrary to the initial intent of the drafters or, at the extreme, undecipherable.

Chapter Five confronts the challenge of traditional theory that holds that landmines should not exist, and certainly not persist. To begin building a theory that explains landmines, the book describes a set of over fifty interviews with the gurus of the sovereign bond market. The gurus were given a set of landmine examples together with a data summary of their presence in the market, and asked to help explain how it was possible for these to exist. Multiple explanations emerged. The most significant was the fact that some lawyers writing these contracts are experts and others are novices. The production of these contracts is done in a time-constrained fashion; there is little time for anyone but an expert to do much repair. Context dictates whether lawyers have an opportunity to coordinate on standard language, and that the original source document has a canonical, almost sacred, status that deters deleting language that is inapt.

Chapter Two tells the stories of four exemplars of hazardous contracts from debt crises for Argentina, Venezuela, Greece, and Sri Lanka. As the authors continued to do research on various sovereign debt crises, they collected stories of flawed contract provisions that had subsequently been weaponized in unexpected fashions. These flawed terms were labeled “landmines.” As the stock of stories of these landmines accumulated, it became clear that they were both numerous and not all of the same type. One of these landmines, a “subversive accretion,” had been embedded strategically to gain a subsequent advantage; another was an “historical holdover” that had been imported from a different market when the form contract first evolved or was an obsolete term attributable to drafters’ failure to properly revise and update the agreements for each transaction; yet others were “errors,” flaws that likely resulted from careless drafting..

Chapter Ten reports a test of the landmines in quasi-bespoke contracts by focusing on the continued durability of ambiguous and undefined terms in clauses that exclude consequential damages (No Consequential Damages or “NCD” clauses). These hazardous clauses persist despite high profile litigation exposing the interpretive nightmare the clauses cause. The problem with the standard NCD clause is the assumption that stringing together a series of terms that different courts have interpreted differently will clarify an otherwise ambiguous clause. It does not, and yet the data suggest that few parties are willing to expend the effort to define each term in light of the purpose and context of that particular contract. Thus, while standardization is ubiquitous in thick markets because of economies of scale and the efficiency of contract production, standardization in these thin markets is ubiquitous because of the inefficiency of having to produce original contract language. In both extremes, parties are unable to coordinate on standard language that is free of landmine risk.

Chapter One shows how blunders and obsolete contract terms can be weaponized in the hands of a skilled lawyer. Greece, in 2011, was on the brink of default. In late 2011, Lee Buchheit, one of the gurus of sovereign debt came to visit a class on International Finance that one of us was teaching. The goal was to introduce students to the design of cross border debt contracts. But the result of Lee’s visit, and specifically of using a Greek sovereign bond contract as exemplar, was a quite different discussion than the one we had had planned. In the context of a likely need for Greece to soon restructure its debt, what Lee showed the students and visiting professors in the class was that embedded deep in the contract were multiple obsolete terms that could be exploited.

Chapter Fourteen concludes by asking why do landmines persist in the contract documents for many financial markets, and can the problems they cause be solved either through state or collective action. One culprit is agency costs—the costs that result from drafters’ failure to meet the markets’ demand for both speed and accurate documentation. A failure to revise or even review the artifact contract inevitably leads to strategic manipulations, blunders, and obsolescence. Another culprit is the textualist mode of interpretation where courts give language a plain meaning even when it violates common commercial usage or understanding. Once we understand the production process, we cannot simply assume either that contract words mean what the parties meant for them to mean or that the parties are capable of correcting any errors going forward. In a world where production costs impede the scrutiny of precise language at the drafting stage, there is an argument for a “landmine exception” to the dominant textualist view. But there is no easy way to implement this exception under current contract doctrine. If contract interpretation doctrine remains resistant to reform, the landmine problem might also be addressed by stimulating networks of drafters to coordinate on removing mutations to the standard form. But this, too, is a daunting challenge especially in thick liquid markets. Perhaps the best hope for solving the contract production paradox is to elevate the plight of the drafting lawyer so that the profession itself can be mobilized to create mechanisms for coordinating landmine removal.

Chapter Four expands the scope of the landmine problem by tracing the evolution of the infamous pari passu clause in sovereign bonds. This evolution shows how a landmine can persist over time and even evolve in new and equally hazardous ways. Pari passu was, and is, a clause that is literally present in every international sovereign bond contract, and while its function is understood by few, it presents an ever-present and continuing risk of exploding in litigation. Indeed, it has already blown up; in a case that brought Argentina to its knees and resulted in a multibillion dollar paycheck for an activist hedge fund.

Chapter Eight moves beyond stories to ask what does the empirical data show on the prevalence and persistence of landmines. The chapter describes two samples of bonds, one from the sovereign debt market’s inception (1990–1995) and one from its mature stage (2020–2022). This examination reveals numerous instances of harmful landmines that persist both broadly and over time throughout the hundreds of bonds that were sampled—some were deliberate changes to standard language, others were blatant drafting errors, and yet others were inapt terms carelessly imported from corporate transactions. The data show that, consistent with the earlier stories, landmines differ from each other in important respects: deliberate changes to the standard form reflect strategic lawyering on behalf of sovereign clients, while errors that only benefit subsequent activists reflect haste in adapting precedents to new transactions. A reason for the persistence of landmines, the chapter surmises, is a lack of pricing of landmines at the time of issuance.

Chapter Seven builds a theory from the interviews with sovereign debt gurus to explain how and when contractual landmines arise and persist. The data on standard form sovereign bond contracts suggested four categories of landmines: First, are a large number of purposeful, but marginal, changes to well-understood standard terms (“subversive accretions”) that give the debtor leverage should it attempt to restructure its debt. Second, are errors that likely arise randomly from novice attorneys drafting contracts without fully understanding the sovereign context. Third, are “historical holdovers”: terms and concepts introduced when the current standard form contract was evolving from corporate transactions. Armed with what the gurus asserted, the chapter asks how their narratives fit the academic theory of incomplete contracts. It suggests that the views of the gurus and regnant theories of incompleteness can be harmonized by accepting the truth of the assertion that the market for sovereign bond lawyers is divided between experts who both drafted contracts and engaged in restructuring negotiations and novices who only work at the drafting stage. This asymmetry, coupled with the misaligned incentives between lawyers and their clients, provides an explanation for why landmines can exist in equilibrium in a competitive, liquid market.

Boilerplate contracts have long fascinated legal scholars. But the focus has been largely on consumer contracts, with the debate centered on the question of whether take-it-or-leave-it mass-produced forms imposed on consumers by large corporations should be treated as contracts or as a problem in regulation. By contrast, commercial boilerplate the standard forms used in transactions for corporate or sovereign bonds or merger agreements has traditionally received little attention. The assumption has been that form contracts among sophisticated parties may differ in form but not in substance from bespoke contracts between business entities. Yet a growing body of scholarship is questioning that assumption. This article reviews the complexities of contract production in these large markets and provides a window into an exciting new area of contracts research.

Contract terms that improve or reduce the likelihood of repayment of a debt should impact its price. That’s basic economics. But what about a contract that is hundreds of pages long and has lengthy and complex terms that even the lawyers are unwilling to read? Believers in efficient markets might predict that variations that affect the likelihood of repayment in such obscure contract terms will be priced at the outset if there are profits to be made by exploiting these variations. An alternate view is that little attention is paid to the fine print in highly standardized contracts until the likelihood of default becomes sufficiently salient to make reading the fine print worthwhile. Using several inadvertent real-world experiments, we examine the question of how and when variations that are assumed to be standardized in obscure contract terms are priced.

Contract scholarship has devoted considerable attention to how contract terms are designed to incentivize parties to ful fi ll their obligations. Less attention has been paid to the production of contracts and the tradeo ff s between using boilerplate terms and designing bespoke provisions. In thick markets everyone uses the standard form despite the known drawbacks of boilerplate. But in thinner markets, such as the private deal M&A world, parties trade o ff costs and bene fi ts of using standard provisions and customizing clauses. This Article reports on a case study of contract production in the M&A markets. We fi nd evidence of an informal information network that transforms bespoke changes in contract terms into industry -wide standard provisions. This organic coordination structure leads to both market -wide coordination as well as a diversity in this response as individual actors implement bespoke variations of the new standard.

Abstract The Uniform Commercial Code has had a profound influence on the development of commercial law over the past seventy years. But viewed from a contemporary perspective, its legacy is decidedly mixed. Article 2 on sales, despite its innovations when first introduced, is now hopelessly obsolete and does not respond to the very different contracting practices facing commercial parties today. The specialized statutes dealing with commercial paper and secured debt—Articles 3, 4, and 9—are still widely useful and have been frequently revised but these revisions were promoted and successfully promulgated by the very parties most affected by the regulation, raising the fear of distributional unfairness toward third party interests. Thus, the quest for a commercial law that is both efficient as between the transacting parties and fair in its treatment of affected third parties must continue.