Interpreting Contracts in a Regulatory State
73 Pages Posted: 28 May 2019
Date Written: May 1, 2019
Some scholars would limit courts to the text of written agreements when interpreting contracts on the theory that parties meant what they said, and said what they meant. Other scholars would have courts take into account the factual context surrounding contract formation. Both sides of this debate assume that contract interpretation is largely limited to reconstructing contracting parties’ intentions.
This assumption is mistaken. Since the overturning of Lochner v. New York, contracting parties no longer have exclusive authority over contracts. State authority to regulate contract came at the expense of unbridled private authority. A more limited conception of contracting parties’ authority justifies what is here described as “normative triangulation” in contract interpretation.
Under the shadow of the modern regulatory state, contractual promises create ‘content-dependent’ reasons for the state to enforce agreements. That is, while we have reason to keep our promises just because we made them, whether and how the state should enforce our promises depends in part on what we have promised. Courts are not bound to enforce terms just as parties are most likely to have intended them. Instead, obligations in contract are properly read in light of background duties that apply to contracting parties, including soft legal norms. Applying a kind of ‘rule of charity’, where contracts are ambiguous, they should be construed to comply with those background norms. Such a rule parallels the canon of constitutional avoidance in the context of statutory interpretation.
The Article elaborates the role of party intent in interpretation, the kinds of background norms that should inform interpretation, and shows how courts presently apply this kind of analysis.
Keywords: contract, interpretation, authority, regulatory state, rule of charity
JEL Classification: K12
Suggested Citation: Suggested Citation