The justification of formalism in contract interpretation and its limit

Contract interpretation aims primarily at ascertaining the common intention of parties. But parties often have different ideas about contract terms or, even have no idea of what the terms exactly mean. Therefore, courts try to construct contracts on the basis of the meaning that a reasonable man would have attached to the contract terms. In this process, normative, policy-oriented judgement can be made. Textualism can be justified, because text is a trustworthy evidence of parties’ will. But textualism and formalism in contract interpretation can also be justified, because it can decrease transaction costs, help to innovate commercial practice, promote party autonomy. Sophisticated parties(ex. firms) can make detailed contracts at lower costs, and they weigh the predictability of courts’ decision. So, textualism and formalism may be desirable in interpretation of commercial contracts between firms, except in the case of information asymmetry or bargaining power problem. So, when interpreting commercial contracts between firms, courts are required to emphasize the meaning of ‘written’ contract and refrain from implying contractual obligation, redistributing contractual risks, enforcing indefinite terms. But textualism and formalism have weakness. They should not ignore parties’ will. And in case of information asymmetry, party’s opportunistic behavior etc., courts’ active role may be desirable