The Means/Ends Dilemma in Contract Interpretation: A Response to Professors Kraus and Scott: How the Intractability of Express Language Affects Interpretive Authority and Legal Interventions in Contracts

Abstract

In their recent article on Contract Design and Intent, Professors Jody Kraus and Robert Scott offer a new justification for literal enforcement of the parties’ chosen terms and for ignoring the contract’s objectives. Their argument depends on a theory of how parties trade off front end and back end costs. Kraus and Scott posit that if parties use specific terms, and fail to use open-ended terms, they have chosen to exclude courts from broadly interpreting the contract or going beyond the chosen means. As such, courts should rigorously adhere to the parties’ explicit contractual means and spurn any judicial strategy that overrides those means in order to secure contractual objectives. Kraus and Scott believe this approach is beneficial because it provides certainty to the parties in how future disputes will be resolved, thereby allowing the parties to more efficiently trade-off between front and back end costs.This Article disputes that view of contract formation. It questions the conclusion that the parties’ chosen means should govern unless the parties have expressly signaled a desire for judicial intervention. An unwavering rule that focuses exclusively on the chosen means may generate negative welfare effects. Moreover, the certainty promised by such a strategy might prove mythical. This Article explores various examples of law-supplied default rules in Contracts that illustrate judicial departures from, or additions to, the parties’ chosen means. These counter examples seem to ignore Kraus and Scott’s injunction to courts to refuse to intervene in contracts unless explicitly requested to do so through an open-ended. The Article concludes by suggesting its own theory of contract interpretation.

Keywords: contracts, Jody S. Kraus & Robert E. Scott, Contract Design and the Structure of Contractual Intent 84 N.Y.U L. REV. (Forthcoming 2009), costs, cntract formation, contract interpretation, default rules, formalism

JEL Classification: K12