The Meaning of Agreement

THE MEANING OF AGREEMENT

PRINCIPLES OF INTERPRETATION[1-6]

Three basic approaches to interpretation
Subjective approach
Courts look at contract and evidence and try to figure out what was in the heads of the contracting parties
what the contracting parties thought the contract or a particular term o in the contract meant
parallel approach to the subjective meeting of the minds
Rationale
Supports highest order for the contractual regime…one can exercise his private autonomy
Peerless case
Both parties were thinking about different ships, and because the parties never agreed to this fundamental term there was no agreement and therefore no contract.
Primary criticisms of the subjective approach
Often does not let contracts to be enforced
If we look at what the parties were thinking, we ignore the fact that words have accepted meanings in normal usage (in general custom, certain industries)
Objective approach
Judge considers what a reasonable person would have thought at that time of entrance into a contract
Fundamental problem of objective interpretation
Judge’s determination of the outcome as judged under the reasonable man concept may differ from the conception of the contract by either party
Court would look at what the industry standard is for defining a contested term
Modified objective approach
The theory that appears in the Restatement
Court looks at both subjective intent of the parties and also what the hypothetical reasonable person would think

Restatement (modified objective approach)

201. Whose meaning prevails.

(1) where the parties have attached the same meaning to a promise or agreement or a term thereof; it is interpreted in accordance with the meaning.

-however, this may be confusing for third parties

(2) where the parties have attached different meanings to a promise or agreement or a term thereof, it is interpreted in accordance with the meaning attached by one of them if at the time the agreement was made

(a) 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

(b) that party had no reason to know of any different meaning attached by the other, and the other had reason to know the meaning attached by the first party

-outside evidence is key in determining the other party’s subjective stance

(3) except as stated in this Section,neither party is bound by the meaning attached to the other, even though the result may be a failure of mutual assent

-in essence, this is the old subjective rule

Maxims of interpretation (not in order; not controlling…selective usage)
If one party indeed does or should know what the other party is thinking…that will be the construction that we will use, otherwise:
(1) interpretation that makes the contract reasonable, legal should be admitted 203
(2) the meaning of a word in a series is affected by others in the same series; or a word may be affected by its immediate context
(3) a general terms joined with a specific one will be deemed to include only things that are like (of the same genus as) the specific one
i.e. “cattle, hogs, and other animals”
other animals probably would not include the house dog
(4) if one or more specific items are listed, without any more general or inclusive terms, other items although similar in kind are excluded
i.e. “cattle and hogs on the farm”
sheep not included
(5) an interpretation that makes the contract valid is preferred to one that makes it invalid
(6) contra preferentum
construe language against the drafter
the drafter must be known AND
the drafter must have greater bargaining power
(7) interpret the contract as a whole
(8) the principle apparent purpose of the parties is given great weight in determining the meaning to be given to manifestations of intention or to any part thereof
almost always employed to one party’s benefit and one’s party’s determent
(9) specific rule is more important than the general rule
this and 10 are most consistently employed and most difficult to rebut
specific term is construed as an exception to the more general term
(10) handwritten or typed provisions control printed provisions
more recent and more reliable expression of intentions
(11) public interest preferred

Joyner v. Adams

P wants to sue D because he has not put up a building on the last lot.
P argued that buildings had to be on each lot
P entered objective evidence to this account
I.e. memoranda
D argued that lots only had to be ready for construction
D entered claims regarding the meaning of the terms in common usage
Court recognized that there was no meeting of the minds and remanded to determine whether or not D knew or should have known P’s meaning or vice versa
IA court on contra preferentum rule
Usually applied where there is a disparity in bargaining power
Not the case here
Also, this case shows that it is not always clear who drafted the contract…parties were passing paper back and forth

Frigaliment v. B.N.S.

Issue: What is a chicken?
Process of court in deciding outcome (in order)
Language of the contract
When in doubt, read the contract
Some people are concerned if you overly rely on contract language or trade usage you give the advantage to one party over the other
Preliminary negotiations between the parties
Parol evidence rule makes it significant whether we look at written agreement or things that came before or after that agreement
Trade usage
Trade usage, course of dealing, course of performance
Think of these three things together
Evidence that we use to prove trade usage is extrinsic to the parties thoughts
Objective interpretation
Trade usage v. course of dealing, course of performance
CofD…if we look at how these two parties have done business in the past, are parties using these terms accordingly
CofP…if we look at how these two have done business in the past, are they performing in a way similar to that
Legal standards
Government standards/regulations
Less effective in this particular case because the contract does not explicitly say that they are relying on definitions from the certain agency
It is one thing to reference a regulation and another to incorporate it into the contract
Reasonable construction should be preferred over one that is unreasonable
It is not unreasonable on its face to say that the market price determines the reasonableness of the term
Sometimes people draw up contracts knowing that they will lose money
What approach to interpretation is the court using?
Modified objective approach
Subjective intent coincides with the objective meaning
Court is looking at subjective intent with the objective meaning to the extent that they can find one
D had no reason to know of P’s meaning. But, P should have reason to know of D’s meaning. 201
Outcome is not that important, analysis is
Could you make the argument that there was no “meeting of the minds,” and thus no contract?
It is possible

Patent and intrinsic ambiguity

Patent ambiguity
Misunderstanding in contract stemming from the words alone
Misunderstanding created without extrinsic evidence and within the four corners
Latent ambiguity
Misunderstanding in contract not apparent from the words alone (at least not in their common meanings)
Misunderstanding created by extrinsic evidence and outside of the plain meaning/four corners

Adhesion contract

Little choice
Standard forms

C.J. Fertilizer, Inc. v. Allie Mutual

Sometimes there is a maxim that we are going to interpret the contract against the drafter…only when we are dealing with a contract of adhesion (look for imbalance of power and absence of dickered terms)
P’s basis for their argument that the policy should cover them here
This is a contract of adhesion
Elements of an adhesion contract
(1) Standardized form
Lengthy, boilerplate
(2) Significant imbalance of power
Somewhat different from contra preferentium
Make certain assumptions because the drafter is the powerful one
(3) Not actually dickering/negotiating
There will be no editing, acceptance will be on the contract as is
The fact that there are blanks on the form does not mean there is dickering, it just means that there were filling in the blanks
Terms are ultimately take it or leave it
Just because it a standard form does not mean it is a contract of adhesion
Because it is an adhesion contract it permits the court to subject it to the doctrine of reasonable expectations
Court will interpret the non-dickered terms in accordance with the reasonable expectations of the non-drafting party
Interpretation will be made even if the express language of the contract contradicts those expectations
Almost the antithesis of the objective approach

Guideposts of interpretation (now 211)
Is the term bizarre or oppressive?
Is the term oppressive here?
P…P payed for coverage, didn’t get coverage…seems pretty oppressive
D…term was clear; no deception…does not seem oppressive
More objective interpretation

Decision of CJ: application of a doctrine of reasonable expectations due to the contract of adhesion led the court to rule in favor of the plaintiff
Restatement 211. Standardized Agreements.
(a) Expect as stated in Subsection (3), where a party to an agreement signs or otherwise manifests assent to a writing and has reason to believe that like writings are regularly used to embody terms of agreements of the same type, he adopts the writings as an integrated agreement with respect to the terms included in the writing
(b) Such a writing is interpreted wherever reasonable as treating alike all those similarly situated, without regard to their knowledge or understanding of the standard terms of the writing
(c)Where the other party has reason to believe that the party manifesting such assent would not do so if he knew that the writing contained a particular term, the term is not part of the agreement

PAROL EVIDENCE[6-18]

PER in a nutshell
Parol, not Parole
Exclusionary rule
Does NOT necessarily bar use of PE to assist in determining the meaning of the parties agreement
PER can bar the introduction of evidence (of prior or contemporaneous communications) intended to add to or contradict a written agreement
Purpose
Provides certainty for the parties
Prevents the introduction of unreliable evidence
Deters attempt to rewrite agreements with hindsight
Where
UCC: 2-202; 1-205
R: 209, 210, 213, 214, 215, 216
Gist of PER: when the parties to a contract have mutually agreed to incorporate (or “integrate”) a final version of their entire agreement in writing, neither party will be permitted to contradict or supplement that written agreement with “extrinsic” evidence (written or oral) of prior agreements or negotiations between them. When the writing is intended to be final only with respect to a part of their agreement, the writing may not be contradicted, but it may be supplemented by extrinsic evidence.
Basic function of PER: the rule does not define what evidence is affirmatively admissible, it only operates to exclude evidence – evidence that would otherwise be admissible as rationally probative of some fact at issue
If PER applies it has the effect of preventing one party from introducing into court extrinsic (or “collateral”) evidence of matters not contained in the written agreement between the parties (hence, “extrinsic” to it), where evidence is offered to supplement or contradict the written agreement
if PER does not apply (either because the parties have not executed such a written agreement or because the offered evidence comes within some exception to that rule), then admission of the evidence will turn on the body of rules that collectively make up the law of evidence

Thompson v. Libby

Court held that the written agreement appeared to be a complete expression of the whole agreement of the parties as to the sale and purchase of the logs, solemnly executed by both parties. Furthermore, there was nothing to indicate that the writing was a mere informal and incomplete memorandum. Therefore, the court held that the lower court erred in admitting parol evidence of a warranty, and therefore the order refusing a new trial must be reversed.
This court holds that the only way you can determine if a contract is complete is by looking at the contract itself
Other courts hold that it is okay to consider extrinsic evidence
Many Js hold that it is okay to use parol evidence to determine whether the integration is complete 214

Meaning of integration
The parol evidence rule only applies to integrated agreements
You need a FINAL, WRITTEN AGREEMENT
You can meet SOF with writing, but that writing does not have to be final
If the parties intend a document to represent the final expression of their agreement, the document is said to be integrated
Integrated Agreements
PER applies only to integrated agreements
An integrated agreements is a writing or writing constituting a final expression of one or more terms of an agreement 209(1); 2-202
Complete integration210(1)
A writing that is intended to be a final and exclusive expression of the agreement of the parties
PER…no evidence of prior or contemporaneous communication (oral or written) may be admitted if this evidence would either contradict or add to the writing
Partial integration210(2)
A writing that is intended to be final but not exclusive because it deals with some but not all aspects of a transaction between the parties
PER…no evidence of prior or contemporaneous communication (oral or written) may be admitted if this evidence would contradict a term of the writing
Therefore, PER does not bar evidence of supplemental terms when the integration is only partial
The correct application of PER thus requires that the court first determine whether the writing in question is intended to be a final expression of the parties agreement, and if so, whether it is a complete or partial statement of the contract terms.
PER…evidence of prior agreement may never be admitted to contradict an integrated writing and may not even supplement an integration that is intended to be complete

Determining integration
Merger clause
Many writing contain a merger clause, i.e. a clause indicating that the writing constitutes the sole agreement between the parties. Such a clause will conclusively establish that the document is a total integration, unless the document is obviously incomplete, or the merger clause was included as the result of fraud or mistake, or there is some other reason to set aside the contract (fraud, mistake, and other fact that show the contract to be void or voidable, are never barred by the parol evidence rule)
E.g., Entire Agreement. This document constitutes the entire agreement of the parties and there are no representations, warranties, or agreements other than those contained in this document.
As a general rule, a merger clause should seal the deal
Times when it would not prevail
Adhesion contracts
If no merger clause…
Williston approach
Question of integration must be determined from the “four corners” of the writing without resort to extrinsic evidence
Objective
Four corners
Must appear integrated in its face
Corbin approach
A finding of integration should always depend on the actual intent of the parties and a court should determine (in camera, in jury cases) whether the agreement was integrated 214
More subjective approach
Consider all circumstances
Writing cannot prove its own completeness 210, comment b
In this approach, even if there is a merger clause, it will not necessarily be solely determinative of the issue of integration 216, comment e
Trends among courts favor the Corbin-Restatement approach to determining integration
Exceptions to PER
Exceptions to PER are so numerous and collectively so broad that the parol evidence rule has become – even more than the statute of frauds – a rule that can be understand only in light of its exceptions
(1)PER does not apply to evidence offered to explain the meaning (an ambiguity) of the agreement
if found to be a partial integration, the writing may not be contradicted by extrinsic evidence 213, comment b; UCC 2-202
it may, however, be supplemented by additional consistent terms
if the writing is a complete integration, then not only may it not be contradicted, it may not even be supplemented 213(2), comment c; 2-202(b)
whatever the degree of integration, however – partial, complete or not at all – a written agreement may always be explained by extrinsic evidence 214(c)
patent ambiguity: obvious on its face
latent ambiguity: misunderstanding in a contract that obvious from the words alone
(2) PER does not apply to agreements, whether oral or written, made after the execution of the writing
PER only applies to communications that are prior or contemporaneous to the agreement; PER does not apply to communications subsequent to the agreement
Evidence of agreement made after the contract was made
(3) PER does not apply to evidence offered to show that effectiveness of the agreement was subject to an oral condition precedent 217
if parties sign a writing that does not include a condition that was orally agreed to, almost all courts allow proof of this condition despite PER
oral evidence is permissible to show that the agreement would not take effect unless some specified event occurred
i.e. your contract is subject to the condition that you will pass the bar
(4) PER does not apply to evidence offered to show that the agreement is invalid for any reason, such as fraud, duress, undue influence, incapacity, mistake, illegality, lack of consideration, or no mutual assent 214
some courts would limit fraud cases to cases of fraud in execution
most courts, however, will extend the fraud exception also to instances of fraud in the inducement – misrepresentations of fact that induces (cannot be simply mistaken) the other party to enter into the contract
as yet a further limitation, some courts will prohibit the introduction of PER to support a claim of fraud in the inducement if the alleged misrepresentation directly contradicts a term in the writing
(5) PER does not apply to evidence that is offered to establish a right to an “equitable” remedy such as “reformation” of the contract 214(e)
if one party can establish that a part of the agreement was inadvertently omitted from the writing due to some mistake (perhaps the error of a “scrivener,” a secretary, or even a computer printer), that party may seek judicial reformation of the agreement – a court order declaring that the mistakenly omitted provision will be treated in law as part of the agreement.
Generally, however, a writing may be reformed in this fashion only if it is show by clear and convincing evidence that the parties really did intent their written agreement to contain the term in question
(6) PER does not apply to evidence introduced to establish a “collateral” agreement between the parties
an agreement will not be regarded as fully integrated if the parties have made a consistent additional agreement which is either agreed to for separate consideration or is such a term as in the circumstances might naturally be omitted from the writing 216
UCC: consistent additional terms should be excluded under 2-202(b) only where the court concludes that if such terms had actually been agreed upon they would certainly have been included in the document 2-202, Comment 3
A collateral agreement is a separate contract between the parties
It is a bargain that stands alone…offer, acceptance, or consideration
The existence or absence of consideration is often extremely telling in this regard
Supplemental agreements outside the bargain at hand are considered collateral and evidence of these agreements are not excluded by PER
For an agreement to be considered collateral it must have its own consideration…this is usually established by another, separate exchange of money

Taylor v. State Farm Mutual Automobile Insurance Co.