The Economics of Form and Substance in Contract Interpretation

Avery Wiener Katz
2003 Social Science Research Network  
For the past 100 years or so t he historical trend in the law of contracts has been to wat er d own for mal interp ret ive do ctrines in favor of a more all-things-considered analysis of what the parties may have meant or what justice might require in the individual case. T his trend away from formal and toward substantive interpretation of contracts has been alternately celebrated and criticized for over a century; and in recent years, a number of eco nomically influenced scho lars, in
more » ... ing some of the classic arguments into eco nomic language, have helped to clarify some of the traditional commentators' concerns. While t his new economic analysis of formalism has been relat ively successful in relat ing the traditional debates ove r formalism to specific transactional and institutional problems such as imperfect information and rent-seeking, however, it has fallen short along the dimension of advancing toward pract ical legal or policy recommendations. This essay, accordingly, proposes a different appro ach: one that focuses on private rather than public legal decisionmakers as a primary aud ience . In genera l, private lawmakers are likelier t o be in a better position to make pra ctical use o f the eco nomic analysis of contracts, in part because the detailed information that is necessary to implement such analysis intelligently is much likelier to be available at the individual level. Furthermore, there are many opportunities for contracting parties to choose between relatively formal and rela tively substantive interp ret ive regimes. What is need ed is a basic taxonomy of economic considerations that can serve as an organizing framework for parties choosing between form and substance when designing contract s; and the later part of the essay at tempt s to establish such a taxonomy.
doi:10.2139/ssrn.464840 fatcat:icsgr3xzcbeq7kgmxzarvdqoou