Hypothetical Bargains: The Normative Structure of Contract Interpretation

The argument here amplifies the contract literature with respect to basic contract theory and its doctrinal applications. The argument extends and corrects the current understanding of contract theory in several respects. First, it clarifies the role of liberal and communitarian argument in constructing interpretive conventions for contract. As currently understood among lawyers, the predominant noninstrumental theories of contract are in large measure indeterminate as to the question of default rules. Nonetheless, as I shall explain, these theories do have limited implications for the ground rules that govern interpretive conventions. The argument here, then, clarifies the role of noninstrumental theory in delimiting the conventions that the law can adopt. Second, having identified these basic limits, the argument demonstrates that analysis of interpretive conventions should proceed, within these limits, on instrumental terms. While lawyer-economists have taken for granted that their mode of analysis illuminates questions of contract law, there is no reason that lawyers – or legal decisionmakers – should defer to economists’ presuppositions on the matter. My argument demonstrates that the small but growing body of instrumental analysis of contract conventions bears directly, as a normative matter, on formulation of legal rules and decision of particular legal controversies.