1 Text and Context : Contract Interpretation as Contract Design

Contract interpretation remains the most important source of commercial litigation and the most contentious area of contemporary contract doctrine and scholarship. Two polar positions have competed for dominance in contract interpretation. In a textualist regime, generalist courts cannot consider context; in a contextualist regime, they must. Underlying this dispute are contrary assumptions about the prototypical contract each interpretive style addresses. For modern textualists, contracts are bespoke, between legally sophisticated parties who embed as much or as little of the contractual context as they wish in an integrated writing, and prefer to protect their choices against judicial interference by an interpretive regime including parole evidence and plain meaning rules. For contextualists in contrast, contracts are between legally unsophisticated parties in two prototypical settings. The first is the mass market, standardized contract between sophisticated sellers and unsophisticated consumers, who cannot bargain over contractual terms; the second involves commercial parties doing business in a deeply nuanced world where formal and informal understandings mix and the meaning of a particular contract can be illuminated by the parties' course of dealings. For the contextualist, willfully restricting a court's access to information bearing on the parties' real relationship in both cases degrades judicial interpretation. We argue that the narrow focus on which prototype should apply universally has erroneously framed discussion of the parties’ choices and led to an inconclusive and limited debate about the role of courts in contract interpretation. The range of options for parties and * Marc and Eva Stern Professor of Law and Business, Columbia University; Charles J. Meyers Professor of Law and Business, Stanford University; European Corporate Governance Institute. * Maurice T. Moore Professor of Law, Columbia University. ** Alfred McCormack Professor of Law and Director, Center for Contract and Economic Organization, Columbia University. The Kauffman Foundation provided support for the research project of which this Article is part.