1. General Principles: Whose Meaning Holds, Ambiguous Terms, What to Do

5. Interpreting the Agreement

A. Principles of Interpretation

1. General Principles: whose meaning holds, ambiguous terms, what to do

olden days: subjective approach, but with pure objective evidence

Modified Objective Approach: to interoperation

Don’t look at the subjective intent itself, but the understanding of it through objective evidence
Intent through objective evidence
If parties actually mean the same thingexternal stuff doesn’t matter
If parties disagreeuse know/reason to know (rule 201)
Look if symmetrical. If it’s not symmetricalfavor ignorant party
The idea remains: if no shared meaning, knowledge of the other, or reason to know on either side: go to subjective understandingno meeting of the mindsmaybe no contract (but then could have stared performance, so started it

Restatement: 201: Whose meaning Prevails?

1. both parties have same meaning of promise/agreementthat meaning holds
2. Different meaninginterpreted in accordance with the meaning attached by one of them if at the time the agreement was made
that party did not know of any different meaning attached by the other, and the other knew the meaning attached by the first party OR
that party had no reason to know of any difference meaning attached by the other, and the other had reason to know the meaning attached by the first party
3. Otherwise: neither party is bound by the meaning of the other, even though the result might be a failure of essent

Swaine: remembter that 201(2) is in steps. If party 1 knew party 2’s meaning; and party 2 should have known party 1’s meaningparty 2 wins: more innocent.

If neither party knew/should have knownno meeting of the minds.
BUT: then could have formed contract later by performance (2:207 ridiculousness)

Restatement 202: Rules in Aid of Interpretation

1. Words and other conduct are interpreted in the light of all circumstances, and if the principle purpose of the parties is ascertainable it is given great weight (find the principle pupose=heavy weight)
2. Writing is interpreted as a whole + all writings that are part of the same transaction are interpreted together
3. Unless different intention is manifested…
a. where language has a general prevailing meaninginterpreted that way
b. technical terms/words of arttechnical meaning in their tech. field
4. Course of performance accepted or acquiesced in without objection is given great weight (where agreement involved repeated occasions/performance by either pary with knowledge+opportunity to object by the other)
5. manifestations of intention of the parties are interpreted as consistent with each other and with other relevant course of performance/dealing/usage of trade (where reasonable)

Restatement 203: Standards of Preference in Interpretation

a. interpretation giving reasonable, lawful, and effective meaning to all terms is preferred to an interpretation which leaves a part unreasonable, unlawful, or of no effect
b. express terms>course of performance/dealings, trade usage.
Course of performance>course of dealings or trade usage
Course of dealing>usage of trade
c. specific terms and exact terms>general language
d. separately negotiated terms>standard terms/terms not separately negotiated

Swaine: If unconscionable term: even if known that parties meant it: dislodge the term/get rid of the unconsionablilty: see the meaning then, irrespective of reason to know.

Restatement 204: Supplying an Omitted essential term

when parties bargain sufficiently defined to=contract…
have not agreed with respect to a term which is essential to a determination of their rights and duties…
a term which is reasonable in the circumstances is supplied by the court

Restatement 206: Interpretation against the Draftsman

choosing between reasonable meanings (of promise/agreement/term)
meaning generally preferred which operates against the party suppling the words (draftsman)

Restatement 207: Interpretation Favoring the Public

choosing between reasonable meanings, meaning that serves the public interest is preferred.

Restatement 222: Usage of Trade

1. usage of trade: a usage having such regularity of observance in place/vocation/trade as to justify an expectation that it will be observed with respect to the agreement.
May include a system of rules regularly observed (even though rules may change)
2. Scope of usage of trade: determined as questions of fact.
BUT If embodied in written trade code/similar writinginterpretation is to be determined by court as a question of law
3. Unless otherwise agreedusage of trade parties engaged in/know or have reason to know of gives meaning to/supplements/qualifies agreement

Swaine: regularity in place, location, or trade (Joyner)

Restatement 223: Course of Dealing

course of dealing: sequence of previous conduct between parties which is fairly to be regarded as establishing a common basis of understanding for interpreting their expression sand other conduct
2. Unless otherwise agreedgives meaning to/supplements/qualifies agreement

Swaine: dealings between parties to this transaction in the past (Joyner)

UCC §§ 1-205: Reasonable time/seasonableness

a. reasonable time: depends on nature/purpose/circumstance of action
b. seasonable iftaken at or within the agreed time OR if no time agreedwithin reasonable time

UCC 2-208: Course of Performance or Practical Construction

1. Contract for sale has repeated occasions for performance by either party with knowledge of performance and opportunity for objection by the othercourse of performance accepted or acquiesced in without objection relevant to determine meaning of agreement
2. Express terms, course of performance, course of dealing, and usage of tradeconstrued to be consistent with each other where reasonable
where not reasonable…
express terms>course of performance
course of performance>course of dealing & usage of trade (now revised by new 1-303 course of dealing>usage of trade)
3. Other than later sections (modification and waiver)course of performance relevant to show a waiver/modification of any term inconsistent with the course of performance
comment: where conduct difficult to show meaning or a waiver: preference to waiver when such construction (plus waiver stuff) needed to preserve flexibility and prevent surprise/hardship
comment: single occasion of conduct is not relevant here

Swaine: acts within this contract (negotiations, acceptance, etc) (Joyner)

CISG art. 8: interpreting the meaning of parties: intent and reasonableness

1. Statements made by/conduct of a partyinterpreted according to his intent where the other party knew/could not have been unaware of that intent
2. (if above not applicable): statements made/conduct of a partyinterpreted according to understanding of a reasonable person of same kind as the other party in same circumstances
3. To determine intent/reasonable understandingconsideration given to all relevant circumstances including:
a. Negotiations
b. practices which parties established between themselves; (course of perf/dealings it seems)
c. usages and any subsequent conduct of the parties (so with other dealings it seems)

CISG art. 9: Course of performance/dealings and Usage of Trade

1. parties bound by usage they agreed to and practices they have established between themselves
2. (unless otherwise agreed): parties considered to impliedly made applicable to their contract or its formation:
a. usage which parties knew/ought to have known
b. which in international trade is widely know to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned

Joyner v. Adams: apply against drafter is last resort. Apply 201: more innocent party (but did it wrong)

P leased property to be subdivided. Rent increase suspended to allow completion of development, but if not completed, then rent increase applied retroactively. 1 lot left, graded, water, sewer, etc
Letters from lessor about (completed): court says this is evidence of what lessor intended, not objective meaning of the parties. Lessee: argues that usage of trade=their understanding (pipes done=complete)
Issue: was this good enough for leasee to have “completed development”?
Trial 1: summary judgment for lessor (their meaning was accepted)
Appeal: contract was ambiguous
Trial 2: meant different things: construe against the drafter. Held for lessor
Appeals Court: Applied Restatement 201 (but combined knew/reason to know. In 201, step by step analysis)
(apply against drafter) about contract constructionnot interpretation (plus unclear who actually provided the provision. One side wrote, but could have been other sides language).
evidence shows different intent of parties (not the objecting meaning they had, for that use restatement 201). Must see if knew/should have known of others meaning.
Conc: Apply P’s meaning if D knew/should have known it. Otherwise, D wins
Have to look at each sides innocence in their understanding of other party’s meaning, not just construe against the drafter (that’s last resort)
But misapplied restatement 201.
Combined 2 sections (knew and should have known): supposed to favor more innocent (relatively) party
And court said if don’t have D didn’t know P’s: then take D’s meaning
But that would actually mean no meeting of the mindsno contract

General Principles of Interpretation (hierarchy)

Plain language is always given great weight (Restatement 202(3)
Words are known by the company they keep
Expressing one excludes the others
Generally: aimed at intent (modified objective approach)
Purpose of the parties (restatement 202(1))
Interpret K as a whole (restatement 202(2))
Interpret K to make it valid (restatement 202(3))
Specific trumps general (restatement 203(c))
Handwritten/typed trumps printed (restatement 203(d))
Extrinsic Evidence of Intent: (general hierarchy)
Course of Performance (restatement 202(4); UCC 2-208)
Course of dealing (restatement 223; UCC 1-205)
Trade Usage (restatement 222; UCC 1-205)
This is not about parties intent, but parties would probably know it, so more reasonable than later self serving claim
Emphasis of this on UCC: especially if merchants. But others in common law are fall back
Principles Not Related to Intent
Interpret ambiguities against the drafter (restatement 206)
Discourage hidden terms, especially when unequal bargaining power. But limited application
Interpret contract to favor public interest (restatement 207)

Maxims of Interpretation: if plain language is ambiguous (also hierarchy I think)

Noscitur a sociis: meaning is effected by language around it/immediate context
Better claim if it’s in a series
Ejusdem generis: a general term joined with a specific one will be deemed to include only things that are like (of the same genus as) the specific one (“Restaurants including KFC, Popeys, and other dining establishments”: probably chick-fil-et counts, not all restaurants)
Expression unius exclusion alterius: if one/more specific items are listed, without more general/inclusive terms, other items although similar in kind are excluded (roasted, fried, microwaved excludes grilled unless say “and other ways of cooking”)
Purpose of the parties: if parties have common purpose (trying to obtain certain legal/factual result) try to understand point of dispute in light of the intent.
Principle and apparent purpose of parties gives great weight to the meaning of terms
But parties have a different purpose for contract: so construe common/principle purpose of contract as a guide to language/to fill gaps
But if purpose obscure: fall back on plain meaning
Ut magis valeat quam pareat: determine things to make contract valid (prefer term making contract valid): restatement 203:
Specific provisions are exception to general ones: if two things are inconsistent, the more specific term is an exception to the general principle (therefore if they contradict, more specific one holds)
If two provisions of a contract are inconsistent with each other and one is general enough to include the specific situation of the other provision, the specific provision qualifies the general one (it’s an exception to the general principle)
Handwritten/typed control printed provisions: basically stuff that’s been talked about/negotiated is over boilerplate stuff
Some principles are unrelated to party’s themselves
Omnia Praesumantur contra proferentem: if handwritten contract has words/phrases of two reasonable meanings (unsure if has to be handwritten, swaine didn’t say so), one which favors one party and one the other, interpretation preferred which is less favorable to one who drafted the contract
Favors party of lessor bargaining power: so must accept stronger party’s terms. Still invoked when no real disparity
Also discourages people from trying to hide terms when drafting: this is incentive to divulge info
Public interest preferred: interpretation that serves the public is preferred to one that doesn’t. Even if parties really didn’t want it. (in gov contracts easysave gov), otherwise, looser.

Frigaliment Importing Co. v. B.N.S. International Sales Corp: order of considerations in disputed term

Facts: P argued “chicken” meant young chicken even though technical compliance with terms
2 weights contracted for. D sent larger weight in stewing chickens.
Rule: in determining disputed terms: consider in order (different restatement 203; UCC 2-208)
1. Language of the contract: if not ambiguous, don’t even go to jury to see who’s meaning holds
Patent ambiguity: obviously ambiguous terms
Latent ambiguity: hidden but ambiguous because of other information
Only objective evidence counts for this (not internal meaning)
2. The preliminary negotiations
3. Trade usage
4. Legal standards
5. Course of performance
6. Maxims
Arguments in language of the contract(intrinsic evidence)
P first argued that because smaller size chicken had to be young (by default bc of size); larger size had to be young too (court rejects). Second argument: related to German word: ambiguous (rejected)
D argues: reference to USDA grade A chicken. That includes stewing chicken. So gov says this is chicken (legal standard argument)
Court: this is a standard to tell parties what’s regulated, not a definition for what counts in contract.
Courts don’t often include USDA definitions bc that’s not the intent of the parties
Arguments under Extrinsic evidenceafter plain language not enough
Trade usage: regularity in place, location or trade (P’s argument failed here)
Course of dealing: between parties ot this transaction in the past
Course of performance: acts within this contract
P was arguing: chicken only includes broiler one. Had a witness too
P has burden of proof to show ambiguous
D arguing: everything is a chicken that’s not a goose or a duck
Here: didn’t matter if no contract was formed (no meeting of the minds) or if D’s meaning taken
BC seller is just defending that they sold chickens: so if no contract, no worry to them, they already got paid (and thus contract through course of performance was done)
If seller trying to get their money: then they would have to show there was a contract, and they sold chickens, so buyer must pay: seller would have to impose their meaning instead of just saying no agreed meaning

Ambiguity Problems:

Look for inclusive/exclusive dates.
Definitional problems (what’s delivery, etc).
double negatives and their scope.
Comma placement: scope problems of qualifying clauses.
Must/may/shall/can issues especially when disjunction/conjunction
Inclusive/exclusive problems

2. Contracts of Adhesion: take it or leave it contracts

Definition 1: “a standardized contract, which imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it.”
Combination of two elements that’s important (with unequal bargaining power supplying)
Standard form documents
Take it or leave it basis
The best case for an adhesion contract
1. Printed form with many terms
2. drafted by one party
3. Who does numerous transactions of this type (which form covers)
4. Presented to other side as take it or leave it (will enter only if agree to terms)
except maybe a few negotiable items (price term)
explicit or implicit, but understood by adherent
5. Signed by adherent (after dickering over the left open terms)
6. Adhering party enters few transactions of this type (at least comparitvely)
7. Principle obligation of adhering party is payment

Reasonable Expectation Doctrine: applying reasonable expectation of inferior party in adhesion contract

Definition:Provisions of a contract are to be interpreted according to theobjectively reasonable expectation of the disadvantaged party(the insured)
only applied to insurance contracts: but could try to apply to adhesion contracts generally
split: if insurance contract must be adhesive
Applied when the insured has an objectively reasonable expectation of coverage even in the absence of an ambiguous insurance policy
So goes beyond restatement 201/206

Split: courts will often apply only if the term is ambiguous (Dissent in Allied Mutual)
you have duty to read: so if unambiguous, if you read it, you can’t have an objectively reasonable belief that you were covered when you really weren’t
just because term has gone through regulation process doesn’t make it unambiguous
Problems with duty to readambiguity requirement (Majority in Allied)
1. Even if read the agreementdon’t award dickering (Allied said it was just to prevent inside job)
Insurance companies may just downplay a term as unimportant
2. Take it or leave itinsured party (or in other circumstances) doesn’t have a choice
so even if knew about it, couldn’t do anything about it
3. Inefficient to bargain on everything:
if required reading/ambiguous to apply the exception, parties would have to bargain on everything
Other ways stricter courts will apply: 1 or more of the following
1. Threshold ambiguity in the term (above)
2. Shitty practice by insurance company
like representing that more stuff will be covered (burglary generally)
seems like is would be fraud in the execution
3. Basis for denying coverage in small print/obscure
so even if read, you could miss it
4. Evidence the insured party didn’t know the term was there
bc otherwise, couldn’t reasonably expect opposit

C&J Fertilizer, Inc. v. Allied Mutual Insurance Co.: apply the objectively reasonable expectation of the disadvantaged party in adhesion contract

facts: insurance contract for break-ins: says needs to be visible evidence of entry on the exterior. Break in occurs, visible evidence but not on the exterior (could argue ambiguity, but court rejected)
court: because insurer had greater bargaining power (take it or leave it), and insured unlikely to read through: terms should be read as the objectively reasonable expectation of the insured
objectively reasonable expectation of insured: term was to prevent inside jobs
based on 1. Preliminary discussions and 2. Strange definition of burglary if burglary insurance doesn’t include this just because no evidence on exterior of premises
there was no knowledge of the term (just conversations about what insurance covered): if knowledge, then might have changed (bc reasonable expectation would change)
Dissent: P knew about the term. So threshold question before going to reasonable expectation is if the term was ambiguous (then follow Restatement 201): this is common for courts to insert
Bc if unambiguous and read (which you have a duty to), insurer (party 2) couldn’t have reason to believe the other party would rejectbc they actually did accept
Differences between majority and Dissent
1. Threshold inquiry question: was the term ambiguous
2. Knowledge of the term (maj. Said no evidence of knowledge; dissent said they knew)
3. Degree and reverence of unfairness
Dissent: term wasn’t in tiny print, party should know about it. Has a duty to read

Questions to ask before applying this?