Academic journal article Law and Contemporary Problems

Risk-Averse Contract Interpretation

Academic journal article Law and Contemporary Problems

Risk-Averse Contract Interpretation

Article excerpt

I

INTRODUCTION

What kind of contract is boilerplate? Is it typical--because it literally describes most actual contracts? Is it anomalous--because it departs from standard ideas about contract formation, which apply to most other contracts? Is it not contract at all--because it lacks meaningful assent on one side? How courts should deal with boilerplate seems to turn on these prior questions regarding its basic character: If it is not contractual at all, then it should not be enforceable. If it is normal contract, then it requires no special treatment. If it is anomalous, though legitimate and enforceable, it would call for its own interpretive regime.

It turns out, though, that how we interpret boilerplate has repercussions for what it is, or how we conceive its legal status. That is, only if our interpretive methodology makes good sense of boilerplate--if it renders boilerplate the recognizable product of the kind of consent we are looking for in contract, and delivers outcomes that serve autonomy and efficiently govern transactions--only then can we justify applying the apparatus of contract to boilerplate and thereby accept it as the means by which the terms of innumerable transactions are set.

In this Article, I argue that boilerplate is properly regarded as normal contract. We can treat it "normally" for two reasons. First, contract interpretation should always take into account factors that scholars deem especially important in the context of boilerplate. Thus, if we understand general contract interpretation in that way, boilerplate does not require its own interpretive regime. More specifically, boilerplate only functions if we take into account the standard market terms that it ordinarily accompanies. I argue, however, that courts should always take standard market terms into account as a benchmark for interpreting ambiguous contract language. More generally, contract interpretation should always incorporate external references of reasonable meaning. Properly applied, such an externally-sensitive methodology would operate to account for third-party effects of boilerplate interpretation without requiring a specialized procedure.

The second grounds for treating boilerplate normally is that some kinds of contextual considerations regarding the process of formation are self-effacing with respect to boilerplate. Because it is appropriate for courts to take into account communications between the parties regarding ambiguous contract terms when interpreting those terms, we might worry that courts will assign meaning to meaningless variation among boilerplate or retroactively imbue communications between contracting parties with significance they did not have. But the general rule works fine for boilerplate as long as courts recognize boilerplate as such. That is, if a given text is standardized, that just means that the parties did not in fact negotiate the language of that term and that evidence pertaining to their negotiations is therefore not relevant to its meaning. This news is not hard to swallow for courts that understand contract as no less than the product of markets than the work product of attorneys.

The interpretive method recommended here is normative triangulation, under which courts interpret ambiguous contract terms in light of the parties' background duties. (1) Normative triangulation seems at first blush orthogonal to standard postures in the debate on contract interpretation. The primary debate is between formalism and contextualism, and the contested question is how much inquiry courts should make into the circumstances of contract. Formalists would defer to party choice, and at least sharply limit judicial inquiry into facts outside the text of an agreement where it records a transaction between sophisticated parties. (2) Contextualists would have courts more easily incorporate a variety of contextual considerations, including communications between the parties, their prior course of dealing, course of performance, and trade usage. …

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