Academic journal article Law and Contemporary Problems

The Butterfly Effect in Boilerplate Contract Interpretation

Academic journal article Law and Contemporary Problems

The Butterfly Effect in Boilerplate Contract Interpretation

Article excerpt

I

INTRODUCTION

Legal disputes relating to contract interpretation are frequently conceptualized as one-and-done affairs. A court will adopt what it considers to be a reasonable interpretation of the contract, rule in favor of one of the parties, and decide the case. Neither the judge nor the litigants tend to think overmuch about how the decision will affect other contract users going forward. In cases where the language being interpreted is contract boilerplate, however, past interpretive decisions will inevitably affect future ones. Just as a butterfly flapping its wings in Tokyo can change the weather in London, so too can a judicial decision interpreting boilerplate language alter the meaning of identical language in thousands of other contracts. To speak of the "butterfly effect" in contract interpretation, therefore, is to describe the effect that a single interpretive decision can have on the interests of far-flung parties not involved in the litigation at hand. (1)

This special issue of Law and Contemporary Problems is devoted to exploring the butterfly effect in boilerplate contract interpretation. (2) This short essay introducing the volume has two objectives. First, it provides a general introduction to the butterfly effect and explains, conceptually, why it is useful to think about boilerplate contract interpretation through this particular lens. Second, it provides summaries of the other articles in the special issue, each of which sheds important light on the workings of the butterfly effect. These contributions, it is hoped, will prove useful to future scholars, judges, and legislatures grappling with the interpretive challenges posed by ambiguous contract boilerplate.

II

THE BUTTERFLY EFFECT EXPLAINED

To understand the significance of the butterfly effect, consider the following scenario. A judge writes a decision assigning a specific meaning to an ambiguous word or phrase that appears in many thousands of contracts. Years later, a different set of parties find themselves involved in litigation implicating the same ambiguous word or phrase. In this new litigation, the judge concludes that that language should be interpreted in precisely the same manner as in the original case decided years before. In future years, other courts presented with the same interpretive question hew closely to the decision rendered by the first two courts.

While this sort of thing happens all the time, it is important to recognize precisely what has transpired. The original interpretive decision recast the meaning of boilerplate language that appears in tens of thousands of existing agreements. This revision occurred without any input from the parties to these other contracts before the fact and without any attempt to notify them of the change after the fact. This is the butterfly effect in boilerplate contract interpretation--the ability of a single interpretive decision to alter the meaning of identical language in thousands of other agreements in one fell swoop.

The butterfly effect in neither good nor bad. It simply is. The effect can, however, generate positive or negative outcomes depending on the quality of the interpretive rule announced in the initial decision. As a general rule, the courts strive to interpret ambiguous contract language to effectuate the parties' intentions. When the language at issue is contract boilerplate that was borrowed wholesale from a prior agreement, however, this task presents obvious challenges. Since the parties never discussed or negotiated this language, it is difficult to unearth any evidence of the specific intent of these particular parties. (3) In such circumstances, the court must shift gears. Rather than seeking to determine the subjective intent of these particular contracting parties, the courts will instead seek to determine the objective intent of most contracting parties. (4) The courts will strive, in other words, to develop an interpretive rule that aligns with the preferences of most contract users. …

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