Contract Interpretation Regimes
| Published date | 01 November 2018 |
| DOI | http://doi.org/10.1111/1468-2230.12375 |
| Date | 01 November 2018 |
| Author | Dan Wielsch |
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Contract Interpretation Regimes
Dan Wielsch∗
Freedom of contract requires the integrity of social institutions that ensure the preconditions
for private autonomy. This has been largely ignored by a private law doctrine that works on
the assumption of the state being the supplier of background justice. The article argues for an
institutional turn in contract interpretation. Depending on whether contracts can link up to
existing conventions or have to create their institutional context in the first place, courts may
apply either an ‘institution-preserving interpretation’ or an ‘institution-creating interpretation’.
This implies the need to refrain from following universal rules of contractual interpretation.
Rather, legal doctrine should focus on the development of sector-specific standards of inter-
pretation and on support for private legal regimes that ensure socially reflexive constructions of
contracts.
Legal interpretation can never be ‘free’; it can never be the function of an
understanding of the text or word alone. Nor can it be a simple function
of what the interpreter conceives to be merely a reading of the ‘social text’,
a reading of all relevant social data . . . legal interpretation must reflexively
consider its own social organization.1
(RE-)FRAMING THE ISSUE OF LEGAL INTERPRETATION:
CONTRACTS IN THE MATRIX OF MEANING
There is no single source of meaning for a given contract. Instead, the words or
the text of a contract are subject to processes of meaning-production in different
social contexts. Yet, what counts in the first instance is that the contract has to
be consistent with the rules and principles of the legal system. This consistency
is ultimately produced through the courts. In fact, the operational function of
courts is to determine the meaning of contractual agreements and other legal
acts with binding effect for a society within the respective jurisdiction.2
However, the standard for consistency of private contracts with the restof the
legal order is significantly relaxed because the principle of private autonomy is a
built-in switch to make the legal system susceptibleto environmental autonomy.
Textual and contextual interpretation may differ in that they admit a narrower
or broader evidentiary basis for determining the meaning respectively, but they
∗Professor of Law at the University of Cologne, Chair of Private Law and Legal Theory.
1 R. M. Cover, ‘Violence and the Word’ (1985-1986) 95 Yale LJ 1601, 1617.
2 This central function of courts within the legal system applies to other legal acts as well.
Constitutional courts, for instance, evaluate the meaning of statutes with binding effect even on
the legislator.
C2018 The Author.The Moder n Law Review C2018 The Modern Law Review Limited. (2018)81(6) MLR 958–988
Published by JohnWiley & Sons Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 101 Station Landing, Medford, MA 02155, USA
Dan Wielsch
actually share the idea of seeking to recover the parties’ intentions.3Textual
interpretation just seems to make a stronger claim to the autonomy of the
parties. By making the parties per se the sovereigns of meaning, one would
strictly honour their will as articulated ex ante.
Against this background, the following argument calls for an institutional
turn in contract interpretation along two dimensions. In the first instance, it
challenges courts to investigate the social environment of the contract compre-
hensively. If one takes contextual interpretation seriously, it must be considered
that contractual agreements are subject not just to individual intentions but to a
plurality of communication systems that produce meaning. It is submitted here
that each autonomous social system that is affected through the prescriptive
programme of actions subjects the contract in question to its own rationality.
Since these emergent systems and their main institutions in turn constitute
the actual preconditions for the effective exercise of autonomy, the impact of
individual rights on these orders is relevant to the interpretation of contrac-
tual rights. Courts are therefore requested to pay equal regard to all normative
sources of meaning in order to make the law fulfil its societal function of de-
ciding normative conflicts in a just manner. For instance, in a subsequent step
the judge must check the parties’ reading of the text against a moral reading
(for instance, as represented by boni mores rules) or an economic reading (for
instance, as represented by competition law rules).
In a second move, judicial interpretation of contracts would have to become
aware of its own institutional practice. Usually, the judge can take the relevant
social context as a given. Here, text is a function of context. Whatever con-
text the judge determines to be essential for the correct meaning of the text,
meaning is imposed on the text. However, the institutional context required
for a specific transaction or project may still have to evolve or may need to be
established in the first place. Under these circumstances, courts lack knowledge
about the functioning of these institutions and their normative requirements.
They are not in a privileged position to master the contextual meaning. Here
the conventional relation of meaning-production in the legal system between
courts in the centre and contracts in the periphery tur ns around. As a con-
sequence, courts would have to extend private autonomy from the formation
of text to the standards of contract interpretation. The courts’ role would be
to facilitate innovative contractual practices that shape socially responsible in-
stitutional arrangements for novel types of cooperation. Societal interpretation
would then take the lead, making it manifest that social differentiation trans-
lates into sector-specific regimes of interpretation of contracts. Eventually, as
the text initiates the creation of context, contracts would become their own
institutions of interpretation.
In order to work out the relation between contract and its social context
in a more detailed and precise way, the article draws on the reconstruction
of law as a specialised communication system.4Since the problem of contract
3 See, for example, A. Schwartz and R. E. Scott, ‘Contract Interpretation Redux’ (2010) 119
Yale LJ 926, 938.
4 N. Luhmann, Law as a Social System (Oxford: OUP, Eng tr, 2004).
C2018 The Author. The Modern Law Review C2018 The Modern Law Review Limited.
(2018) 81(6) MLR 958–988 959
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