Contracts II
Chad DeVeaux
Spring 2013
Interpretation of Ambiguity
· As a general proposition, contractual language is interpreted in accord with its ordinary meaning
· Like conscious ignorance, if you have reason to believe that the other party might have a different interpretation of the meaning of a term in the contract, you have duty to clarify before entering the agreement. Otherwise you assume the risk.
· Plaintiff must prove that:
1. the word in question is reasonably susceptible to more than one meaning;
2. that the defendant knew or had reason to know of the meaning ascribed by the plaintiff; and
3. that the plaintiff didn’t know, or have reason to know, the meaning ascribed to the term by the defendant.
· Patent vs. latent ambiguity:
o Patent = ambiguous on its face. Can be determined to have more than one meaning using judicially accepted sources like dictionaries or encyclopedias.
o Latent = ambiguous upon further research. Would require testimony to demonstrate that the term is ambiguous.
· Common law of many states – including Idaho – requires plaintiffs in contractual-ambiguity cases to demonstrate that the term in question is patently ambiguous.
· UCC has a specific provision indicating that latent ambiguity can be proven by testimony
· The modern view is that definitions of terms contained in statutes or administrative regulations are not determinative of the meaning of such terms in contracts. (Unless the contract specifically references the definition)
· Doctrine of Reasonable Expectations – The objectively reasonable expectations of applicants and intended beneficiaries regarding the terms of insurance contracts will be honored even though painstaking study of the policy provisions would have negated those expectations. (only insurance policies)
Fraud
· Elements of Fraud:
o A misrepresentation of material fact;
o The party making the misrepresentation has to know it is false, or acted with reckless disregard with respect to its veracity;
o The damaged party must have reasonably relied on the representation;
o And suffered an injury as a result
· Both grounds for rescinding the contract, and grounds for a tort.
o Tort allows for punitive damages and is therefore usually the preferred complaint.
· In the inducement
o Misrepresented the facts to gain acceptance
· In the execution
o Swapped documents while he
o Collateral agreements
§ Separate contract; or
§ Would rationally expect to be separate
§ Often used by courts as a way out
o Duress
§ See last semester’s definition
· Corbin approach
o UCC and half the states at common law
o Will allow extrinsic evidence to show that the merger clause is not indicative of the parties intent
o You get the contract people intended rather than the one that was actually reduced to writing
o Costly due to the allowance of discovery instead of dismissing on matters of law at the 12(b)(6) stage
· Williston approach
o The other half of the states at common law including Idaho
o Thompson v. Libby
o 4-corners approach
§ Look at what is on the document
§ The intent of the parties is represented by the document
§ Does it “look” final, contain all dickered terms?
§ Merger clause is dispositive for integration
§ Ambiguity must be patent
§ The traditional approach
