Lexical Opportunism and the Limits of Contract Theory
37 Pages Posted: 16 Jun 2015 Last revised: 2 Mar 2016
Date Written: October 13, 2015
This essay is a reflection on the gap between the real-life practice of contract law and some of the academic theory that tries to explain it. I describe “lexical opportunism,” an aspect of contract practice having three elements. First, the parties must have reduced a complex business arrangement to contractual text, portions of which are as devoid of thoughtful drafting or close negotiation as the boilerplate in a consumer contract. Second, an adversary cleverly develops a legal theory based upon a colorable interpretation of that text. Third, this interpretation creates a potential for staggering liability beyond all common sense. A multi-billion lawsuit, recently settled, serves as an example, and triggers my discussion of (a) what it means to engage in theoretical assessment in contract law; (b) how the justification of contract law by way of inhibiting economic opportunism is based on the simplest examples, rather than the kind of contract discourse found in any real-world contract worth spending millions to litigate; and (c) how normative theory based on upholding the moral sanctity of promise keeping evaporates when the parties disagree about the meaning of their promises. I argue that both economic and moral theories about contract law fail to account for issues in the use of language and depend on the naïve adoption of the correspondence theory of truth. The nature of language permits opportunism, and the only check on it is the desire, from whatever motivation, not to be opportunistic. I conclude with what I hope are some constructive thoughts about the appropriate use of theory in lawyering, and thereby mitigate my skepticism whether any single theory or discipline is capable of meaningful explanation or prediction about lexical opportunism.
Keywords: contract theory, lexical, opportunism, text, New Institutional Economics, transaction cost economics, Williamson, Fried, boilerplate, mergers, Grice, philosophy of language, implicature
JEL Classification: K12, K21, K22, K41
Suggested Citation: Suggested Citation