Interpretive Risk and Contract Interpretation: A Suggested Approach for Maximizing Value

The Article offers a theory of judicial intervention and interpretation in Contracts. It posits that the principal objective of courts interpreting, supplementing, or overriding terms is to ask whether such intervention can serve the broad objective of maximizing gains from trade while minimizing transaction costs and the costs of opportunism, collectively, an interpretive risk. It offers an economic rationale for a broad approach to interpretation It explores several examples from Contract law where courts depart from the parties’ textual choices and follow the theory suggested in this Article. These examples directly challenge the theory of the new formalists