Reflections on Judicial Contract Interpretation and the Boden Lecture

Posted on Categories Business Regulation, Judges & Judicial Process, Public, Speakers at Marquette

agreement-signingThis week in my Contracts class we are discussing how to interpret a contract — that is, how to give contractual language meaning. This discussion inevitably focuses on how courts interpret contracts, because Contracts casebooks primarily examine principles of contract through case law. Cases do, in fact, provide a useful lens through which to study contract interpretation, for they allow an examination of courts’ goals and tools in approaching conflicting arguments about how to interpret an ambiguous term. Yet we also considered judicial interpretation of contracts from a policy perspective.

Specifically, in light of Professor Robert Scott’s Boden lecture “Contracts Design and the Goldilocks Problem,” I asked my Contracts students to reflect on the wisdom of judicial determination of the meaning of ambiguous contractual language. Importantly, some students shared Professor Scott’s sentiment that generalist courts might not be adequately equipped to determine the meaning of a contract that is highly specialized and context-specific, especially given that courts must ex post determine the parties’ meaning arrived at ex ante, when the contract was entered into. Moreover, by giving courts the power to decide whose meaning of a contractual term controls, parties can game the system and argue for an interpretation that they might not have actually intended at the time of entering into the contract (or as Prof. Scott described them, be opportunistic, or “shady”), as a way to either avoid or reduce the party’s contractual obligation. Because courts often cannot identify this type of “shady” behavior, as Professor Scott observed, sophisticated parties seek to prevent courts from interpreting a contract except in those instances where the court is likely to get the outcome right.

Importantly, one student in my Contracts class asked: how does a lawyer preclude this kind of interpretive opportunism when drafting a contract? As Professor Scott mentioned, the potential for this type of opportunism is to an extent rooted out by sophisticated lawyers, at least in transactions that recur with high frequency (or as he put it, that have “thick markets”) and with contractual performances that are fairly predictable (i.e., low uncertainty). In my contract drafting course, I frequently discuss with students how to help a client either reduce this kind of judicial risk (for example, through careful, risk-shifting drafting) or at least to help the client identify and evaluate this kind of judicial risk. Thus, even outside of the context of a high-frequency, low-risk transaction, students can begin to see how they might add value to a client in the context of a transaction.

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