Contracts II Outline
Prof. James Fox
I. PRINCIPLES OF INTERPRETATION
a. Introduction: Primary concern of contract law is the protection of the reasonable expectations of the parties to a contract. Protecting reasonable expectations is difficult if the parties have different reasonable expectations. If this occurs it is up to a court to determine what the terms of the agreement really are, the court must interpret the agreement.
b. Methods of Interpreting a Contract
i. Subjectivist Approach:
1. Must have meeting of the minds.
2. Ex Peerless Case, Raffles v. Wichelhaus. Two merchants enter into a contract for the sale of cotton to arrive on Peerless (a ship) from Bombay. There were two Peerless ships leaving Bombay one in October the other in December. Seller meant December Peerless, buyer meant October Peerless. No meeting of the minds, no contract.
3. Danger parties may lie to get out of a contract
ii. Objectivist Approach:
1. What would a reasonable person interpret the words to mean
2. Danger could end up with a contract containing terms that neither of the parties intended.
iii. Modified Objectivist Approach (Modern View – Corbin):
1. Court determines what the parties really meant (subjective view using objective evidence)
2. Subjective view what was manifested by the parties during the contract performance NOT what parties claim they believed the terms meant
3. Restatements 2d Section 201
i. If both parties have attached the same meaning use that meaning (Parties can change the “true” definition of a term by agreeing to a new definition in their contract)
ii. If the parties have attached different meanings the court then tries to determine if either party knew what the other party thought the term meant
1. If neither party knows what the other believes – No mutual assent
2. If one knows what the other believes the term will be interpreted against that party
3. If both parties knows what the other believes
a. Parties have agreed to disagree
b. No K formed
c. Maxims of interpretation: There are a number of “maxims” that courts use in deciding which of two conflicting interpretations of a clause should be followed (total of 10 maxims on page 358)
i. Noscitur a sociis: The meaning of a word in a series is affected by others in the same series
ii. Ejusdem Generis: A general term joined with a specific one will be deemed to include only things that are like the specific one.
iii. Purpose of the Parties: If the “principal apparent purpose” of the parties in making the contract can be ascertained, that purpose is given great weight.
iv. All terms made reasonable, lawful and effective: All terms will be interpreted, where possible, so that they will have a reasonable, lawful and effective meaning.
v. Contra proferentem (Construed against drafter): An ambiguous term will be construed against the person who drafted the contract.
vi. Negotiated terms control standard terms: A term that has been negotiated between the parties will control over one that is part of a standardized portion of the agreement (i.e., the fine print “boilerplate”). (Example: A clause that has been typewritten in as a “rider” to a preprinted form contract, or a clause that has been handwritten onto a typewritten, agreement, will have priority.)
tion of the parties agreement
c. PER: Useful for deterring fraud and perjury
d. Extrinsic Evidence that is not Barred:
i. Evidence of interpretation for ambiguous terms
ii. Evidence of duress or fraud – there was never a contract
iii. Evidence of reformation – if there are typos
iv. Evidence of collateral agreement – Side agreement that must have separate consideration
v. Subsequent Agreement – Evidence of a term that comes up AFTER the execution of the agreement
e. Classical Approach:
i. Threshold question – Is this a final and complete written contract?
ii. Examine the document and only the document to determine if it is fully integrated
iii. Four corners approach
1. Document must show both parties agree to the terms
2. Terms must appear to be complete
3. Document must be in a form showing it is a final expression of the parties
a. A receipt would not be acceptable
b. Use of a merger clause
f. Modern (Restatement) Approach:
i. Restatement 2d 209, 210, 214
ii. Under modern approach merger clause not conclusive for complete and exclusive contract
iii. See flow chart for applying PER