Modularity is not the LawAncient and modern principles of contract interpretation work against contracts made of modular parts

This post is part of a series, Common Form.

Basic contract law prevents lawyers from composing contracts out of interchangeable parts. More concretely, legal principles prevent lawyers from ripping a section out of one contract and adding it to another without fear of unintended side effects. This is because, first, other provisions of the destination contract can implicitly change the effect of the borrowed section, and, second, the borrowed section can implicitly change the effect of other sections in the destination contract. Even if new and old sections do not share defined terms or cross-references in common, side effects can cross the whitespace between neatly isolated chunks of contract.

Nearly everything made efficiently is made of parts that can be swapped out in that way. Software is written that way. Complex equipment is made that way. Buildings are constructed that way. Even food is increasingly made that way. More and poorer people can everyday afford those things. But all is not necessarily lost for private law.

First, the Bad News

All us lawyers know the bad news. Consider the following contract-law classics:

1. A contract should be read as a whole, with no provision considered in isolation.

2. Written contractual agreements should be construed so that no provision is meaningless. (See also “nullity” and “surplusage”.)

3. Interpret each provision consistently with the overall scheme or plan of the agreement.

4. When parties enter multiple written agreements at the same time and for the same purpose, construe them together.

5. When a generality follows a list of specifics, construe the generality to include only items of the same type as the specifics.

6. The inclusion of one item implies the exclusion of others.

7. Specific terms govern general terms.

8. Give a word used in multiple provisions the same meaning throughout.

Every lawyer learns these principles in some formulation or other. (If I’m missing any, let me know.) Courts often recite and apply them, though when and how isn’t always easy to predict.

Some of these maxims are exactly what we’d tell courts to do if we wanted to prevent lawyers from drafting modular contracts. The rest define pattern relationships between provisions (or between certain factual circumstances and provisions) that, once recognized by a court, lead to consequences that change the meaning of language.

Lawyers are already wary of the most obvious examples, like governing law provisions. Anecdotally, we seem less prepared to anticipate issues with integration clauses, no-waiver clauses, third party beneficiary disclaimers, and other boilerplate with cross-cutting effects that don’t correspond to easy-to-find cross-references or defined term usage. When it comes to terms that aren’t Defined Terms or shared concepts like ownership, identity, or vague lawyer-math like “pro rata” we’re rolling dice.

Opting Out

The good news, at least for wonks trying to write modular contract systems, is that it’s established practice to override, or opt out of, at least some modularity inhibiting maxims that turn out to be little more than default rules. I haven’t identified any general limiting principle that would stop lawyers opting out of others.

We have all seen “headings don’t count” provisions that write headings out of the four corners of a contract. We have seen “product of negotiation” clauses. We have seen explicit precedence hierarchies among related documents and related provisions. Runs like “including, but not limited to” abound, and some practitioners even make a single clarification that applies throughout each agreement. We all use contrived defined terms where the same word would be clear in context in plain English, but interpreted to have the same meaning throughout at law.

The prevalence of provisions about headings begs the question: Why don’t we also disclaim any meaning lingering in the choice of words we use as Defined Terms? Why, in appropriate circumstances, don’t we disclaim each of the troublesome maxims? Could a contract state unequivocally that each section is to be interpreted, to the fullest possible extent, without implicit reference to any other sections or documents?

Baseline

A standardized complement of provisions purpose-drafted to opt drafters into a world of modular contract drafting could be the foundation of a new ecosystem of modular contract components. But how to go about writing such provisions?

Frankly, I’m not sure. The relevant rules of law are dusty-volume common law in many states, and the language used in key state-court opinions differs among jurisdictions. Identifying each one in a contract might provide incredibly tedious, and precision would almost demand citing (or more elliptically identifying) the relevant case law. That’s beginning to sound more like a schedule than drop-in language. It could dwarf the word count of smaller contracts.

On the other hand, a general statement of provision isolation seems riskier, though not for any reasons I can yet articulate. I suppose approach doesn’t much matter, so long as the result is as intended. But the effect of any particular formulation might very well be highly jurisdiction-specific.

Your thoughts and feedback are always welcome by e-mail.

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