Interpretation and Construction in Contract Law

Interpretation determines the meaning of a legal actor’s words and actions, construction their legal effect. Although the interpretation-construction distinction has a long pedigree, contract scholars today rarely attend to it, and the relationship between the two activities remains understudied. This Article provides an account of the interplay between interpretation and construction in contract law. It begins with the history of the concepts, focusing on the works of Lieber, Williston and Corbin. It adopts Corbin’s complimentary conception, according to which interpretation alone never suffices to determine speech act’s legal effects; a rule of construction is always required. The Article departs from Corbin, however, by arguing that contract law recognizes multiple types of meaning, and therefore calls for different types of interpretation. Legally relevant meanings include plain meaning, contextually determined use meaning, subjective and objective meanings, purpose, and the parties’ beliefs and intentions. Which type of meaning is legally relevant when depends on the applicable rule of construction. Consequently, although interpretation comes first in the process of determining parties’ legal obligations, the correct approach to legal interpretation is determined by rules of construction. The Article identifies two additional ways construction can be said to be prior to interpretation in contract law. First, judicial acts of construction can attach to contract boilerplate standard legal effects that depart from the words’ ordinary meaning, turning them into a legal formality. Acts of construction can thereby give boilerplate new semantic meanings, to which interpretation must attend. Second, when parties choose their words in light of their legal effects, rules of construction often figure into their communicative intentions. Rules of construction can therefore also be prior the pragmatic meaning of what parties say and do. Understanding this complex interplay between interpretation and construction is essential to understanding how the law determines the existence and content of contractual obligations. Although this Article does not argue for one or another rule of interpretation or construction, it lays the groundwork for analyses of which rules are appropriate when

Contracts, Constitutions, and Getting the Interpretation-Construction Distinction Right

Interpretation determines the meaning of a legal actor’s words or other significant acts, construction their legal effect. Using contract law and then two nineteenth century theories of constitutional interpretation as examples, this Article advances four claims about interpretation, construction, and the relationship between the two. First, many theorists, following Francis Lieber, assume that rules of construction apply only when interpretation runs out, such as when a text’s meaning is ambiguous or does not address an issue. In fact, a rule of construction is always necessary to determine a legal speech act’s effect, including when its meaning is clear and definite. Construction does not supplement interpretation, but compliments it. Second, there exists more than one form of interpretation, and correspondingly more than one type of meaning. The meaning a text or other speech act has depends on the questions one asks of it. Third, which type of meaning is legally relevant depends on the applicable rule of construction. Rules of construction are in this sense conceptually prior to legal rules of interpretation. This priority has important consequences for how legal rules of interpretation are justified. Finally, because there exist multiple types of meaning, when one form of interpretation runs out, another form might step in. Whether that is so again depends on the applicable rule of construction.These four claims apply to legal interpretation and construction generally. This Article supports them with a close examination of the interpretation and construction of contractual agreements. It then argues that this account of interpretation and construction illuminates the shared structure of Joseph Story’s and Thomas Cooley’s theories of constitutional interpretation, and by extension theories of constitutional interpretation generally

To Perform or Pay Damages

In The Myth of Efficient Breach: New Defenses of the Expectation Interest, Daniel Markovits and Alan Schwartz argue that contractual promises between sophisticated parties are best interpreted as disjunctive promises to perform or pay damages. They further argue that this dual performance hypothesis answers moral critics of the expectation remedy. This comment makes three claims about Markovits and Schwartz\u27s argument. First, although the dual performance hypothesis is supported by Markovits and Schwartz\u27s instrumentalist model, they do not have a good argument that it is empirically correct -- that it is the best interpretation of what sophisticated parties actually intend. Such an argument is necessary to fully answer the moral critics. Second, the dual performance hypothesis is still worth taking seriously, as it casts new light on the implications of the theory of efficient breach and the economic model that stands behind it. In particular, the hypothesis helps explain why punitive damages can make sense when breaching parties attempt to evade their obligation to pay damages. Finally, the dual performance hypothesis is not the best answer to moral critics of expectation damages. Rather than reinterpreting the content of contractual promises, we should reject the premise that parties\u27 moral obligations are best understood on the model of promises. We should also reject the assumption that contract law serves morality only if it enforces parties\u27 first-order moral obligations. A contract law might serve morality instead by serving corrective justice or by supporting the social practice of entering into and keeping agreements

Introduction to \u3ci\u3ePhilosophical Foundations of Contract Law\u3c/i\u3e

This Introduction to Philosophical Foundations of Contract Law (Gregory Klass, George Letsas & Prince Saprai eds., Oxford University Press, forthcoming) describes the field of contract theory and locates the essays in the volume within that field. The volume includes chapters from Aditi Bagchi, Randy Barnett, Lisa Bernstein, Mindy Chen-Wishart, Charles Fried, Avery Katz, Dori Kimel, Gregory Klass, George Letsas and Prince Saprai, Daniel Markovits, Liam Murphy, David Owens, J.E. Penner, Margaret Jane Radin, Joseph Raz, Stephen Smith, and Charlie Webb

Parol Evidence Rules and the Mechanics of Choice

Scholars have to date paid relatively little attention to the rules for deciding when a writing is integrated. These integration rules, however, are as dark and full of subtle difficulties as are other parts of parol evidence rules. As a way of thinking about Hanoch Dagan and Michael Heller’s The Choice Theory of Contracts, this Article suggests we would do better with tailored integration rules for two transaction types. In negotiated contracts between firms, courts should apply a hard express integration rule, requiring firms to say when they intend a writing to be integrated. In consumer contracts, standard terms should automatically be integrated against consumerside communications, and never integrated against a business’s communications. The argument for each rule rests on the ways parties make and express contractual choices in these types of transactions. Whereas Dagan and Heller emphasize the different values at stake in different spheres of contracting, differences among parties’ capacities for choice — or the “mechanics of choice” — are at least as important

Interpretation and Construction in Altering Rules

This essay is a response to Ian Ayres\u27s, Regulating Opt-Out: An Economic Theory of Altering Rules, 121 Yale L.J. 2032 (2012). Ayres identifies an important question: How does the law decide when parties have opted-out of a contractual default? Unfortunately, his article tells only half of the story about such altering rules. Ayres cares about rules designed to instruct parties on how to get the terms that they want. By focusing on such rules he ignores altering rules designed instead to interpret the nonlegal meaning of the parties\u27 acts or agreement. This limited vision is characteristic of economic approaches to contract law. Valuable as they are for identifying the incentives, intended or unintended, that legal rules create, they tend to overlook other functions of contract law. The essay develops these points by applying the interpretation-construction distinction to Ayres\u27s theory. It distinguishes between two categories of altering rules, juristic and hermeneutic. Juristic altering rules are designed to help parties get the legal outcomes they want, though as Ayres points out, such rules also might attempt to slow parties with extra transaction costs. Hermeneutic altering rules condition legal change on the nonlegal meanings of what the parties say and do. Their application therefore requires a broader form of interpretation. The essay identifies the connections between each type of rule and more general principles and purposes of contract law. And it argues that attention to hermeneutic altering rules can fill in some of the gaps in Ayres\u27s account, such as explaining why juristic altering rules often specify sufficient but non-necessary means of effecting a legal change

False Advertising Law and New Private Law

This chapter, which will appear in the Oxford Handbook of New Private Law, examines the extent to which US false advertising law can be viewed as part of the private law. Its working hypothesis is that that although it can be helpful to distinguish private from public law, there is not a sharp border between the two regions. Laws that fall on the private side of the divide can be designed in light of purposes and principles commonly associated with public law, and vice versa. False advertising law provides an example. Despite the fact that it is commonly classified as public law, one can find in it structures, functions, and values commonly associated with private law. The structural features include horizontal duties, transfer remedies, private enforcement, and judge-made rules. False advertising law is unusual in that, viewed through a private law lens, it imposes on advertisers one duty owed to two distinct categories of persons. The duty not to engage in deceptive advertising is owed both to consumers, who might be deceived by an advertisement, and to honest competitors, who might lose sales as a result of consumer deception. And the duties it imposes on advertisers differ from analogous or ancestral common law torts. Rather than a duty not to lie or utter falsehoods, advertisers have a responsibility to consumers not to cause them false beliefs. Rather than a duty not to disparage another business or its products, advertisers have a duty to competitors to play by the rules of the marketplace. That said, advertisers’ obligations to consumers and to competitors can both be understood in ethical terms familiar to the private law. This is not to deny the differences from other areas of private law. US false advertising law lives in statutes and regulations; it is enforced by federal agencies and state attorneys general; and its rules can seem designed more to promote consumer welfare and market efficiency than to enforce interpersonal obligations or compensate for wrongful losses. And there are practical impediments to consumer lawsuits, consumer oriented remedies, and adjudicative resolution of false advertising claims. But false advertising law shows its private law roots, even if its branches extend beyond them

The Law of Deception: A Research Agenda

The law of deception is the body of laws that address acts and omissions that wrongfully cause others to hold false beliefs. So defined, the law of deception cuts across traditional doctrinal boundaries. It encompasses the torts of deceit and defamation, false advertising laws, labeling requirements, securities fraud and disclosure regulations, criminal fraud, perjury statutes, and a host of other generic and more targeted laws. This essay suggests that the law of deception constitutes a coherent body of law, and identifies four salient questions about it. The questions are these: First, within the law of deception one finds several different approaches to interpreting potentially deceptive communications. These include highly contextualist approaches (e.g., the tort of deceit), more restrictive literal-meaning rules (federal perjury law), and occasionally default legal meanings (the FTC’s reasonable basis rule). One set of questions concerns when and why which interpretive approach is appropriate. A second set of questions concerns legally salient harms. Laws of deception can be designed to protect those who might be deceived (e.g., negligent misrepresentation), those about whom a lie is told (defamation), honest competitors (false advertising laws), and credible communication more generally (as the Stolen Valor Act attempted). A theory of the law of deception should disaggregate these distinct purposes and evaluate the justifications for and design implications of each. A third set of questions concerns the relationship between deception and consent. Although deception sometimes vitiates consent (in the torts of battery and trespass, in contract law, in fourth amendment searches, and in rape law), it does not always do so. And the line between vitiating and non-vitiating deception shifts across different laws. This too demands explanation. Finally, sometimes the law permits parties to contract out of liability for deception (e.g., “big boy” letters), effectively consenting to what would otherwise be deceptive behavior. A theory of the law of deception should also provide an account when, why and how parties are able to contract out of laws of deception. These are not the only interesting questions one might ask about the law of deception. Nor does this essay attempt to answer them. The goal is to make the case for thinking about the law of deception as a whole, and to suggest some directions for further research

What If Fiduciary Obligations Are Like Contractual Ones?

This essay, to appear in Contract, Status, and Fiduciary Law (Miller & Gold, 2016), explores three ways fiduciary obligations might be like contractual ones: in the methods lawmakers use or should use to determine the content of the obligation; in the private voluntary acts that generate the obligation; and in the fact that the obligation is a default that parties have the power to alter. The thesis is that to the extent that these similarities exist, they are not especially revealing. Theorists who emphasize the similarities commonly treat contract law as a private power-conferring rule, then analogize the law of fiduciary obligations to it. In fact, the law of contract is more complex and serves a broader range of purposes than just giving private parties the ability to undertake legal obligations when they choose. Contract obligations are sometimes imposed for reasons other than party choice, and contract defaults and altering rules can be designed to serve other social purposes. A more nuanced understanding of the functions and design of contract law suggests that structural similarities between fiduciary obligations and contractual ones tell us less about the fiduciary obligations than we might have hoped. The explanation of why that is so, however, reveals important features both of contract law and of the law of fiduciary obligations

Intent to Contract

There is a remarkable difference between black-letter contract laws of the United States and England. In England, the existence of a contract is supposedly conditioned on the parties\u27 intent to be legally bound, while section 21 of the Second Restatement of Contracts states that [n]either real nor apparent intention that a promise be legally binding is essential to the formation of a contract. There are also differences within U.S. law on the issue. While section 21 describes courts\u27 approach to most contracts, the parties\u27 intent to contact can be a condition of validity of preliminary agreements, domestic agreements and social arrangements, reporters’ promises of confidentiality to sources, and gratuitous promises. This Article develops an analytic framework for evaluating these rules and examines their relationship to the broader principles that animate contract law. Rules that condition contractual liability on proof of contractual intent must include rules for interpreting that intent. Those interpretive rules will include both interpretive defaults and rules for what it takes to opt-out of the default. By adjusting these default and opt-out rules, the law can achieve different balances between the duty-imposing and power-conferring functions of contract law, or among the various reasons for enforcement. This is demonstrated by an analysis of the rules for gratuitous promises, preliminary agreements, spousal agreements and reporters\u27 confidentiality promises. The results of that analysis include a new argument for the Model Written Obligations Act; a critique of Alan Schwartz and Robert Scott\u27s proposal preliminary agreements and a recommended alternative to it; and recommended changes to the rules for agreements between spouses. Attention to intent to contract requirements also indicates an overlooked aspect of how the enforcement of contracts affects extralegal norms and relationships of trust. Interpretive rules that require parties who want, or who do not want, legal liability expressly to say so are particularly likely to interfere with or erode extralegal forms trust that otherwise create value in transactions