Select Page

Contracts II
Stetson University School of Law
Fox, James W.

I.        PRINCIPLES OF INTERPRETATION
 
a.      Interpretation – the process by which a court gives meaning to contractual language when the parties attach materially different meanings to that language.
 
b.      Interpretation includes construction which is a judicial role in determining the legal effect of the language.
 
c.       “Subjective” approach to interpretation: if the parties attributed materially different meanings to contractual language, no K was formed. Concept of a “meeting of the minds” used. Case on point-Raffles-2 ships w same name. Buyer meant one ship, seller meant the other. Ct held in buyer’s favor b/c there was no consensus and no binding K. “Peerless”: the reason for a K→ they contract their own risks. Dispute arises from trying to get out of the K. Maybe they both knew they were talking about the same ship? Maybe the Buyer changes his mind later saying that he meant the October ship. Danger in the “subjective” approach is that maybe the parties will lie.
 
d.      “Objective” theory of contractual interpretation. Holmes + Williston. Words and conduct should be interpreted in accordance with the standard of a reasonable person familiar with the circumstances.
 
e.      Modified objective approach. Currently. Prof. Corbin.
i.                    Whose meaning controls the interpretation of the K?
ii.                  What was that party’s meaning?
iii.                A mutual understanding of the parties controls, even if it is different from the interpretation that would be given to the K by a reasonable person. R2§201(1)
iv.                 You look at what they said/expressed at the time of negotiation. It looks at what each party thinks through objective evidence.
 
f.        Crucial issue: Whether one party knew (or had reason to know) of the meaning attached to the K by the other? If parties attached different meanings to a material term of the K and neither party knew or had reason to know the meaning of the other, then no K exists under modern approach b/c there is no mutual assent. * General advice: substitute parties for specific fact pattern to see if you get a better understanding of how a rule works. Take each side to see what their understanding is.
 
g.      Joyner v. Adams applies the Restatement approach to interpretation.
i.                    It is axiomatic that where parties have attributed different meanings to a term within a contract, there is no “meeting of the minds” on that provision and a court will not enforce either party’s meaning.
ii.                  Where 1 party knows or has reason to know what the 2nd party means by certain language, and the 2nd party does not know or have reason to know of the meaning attached to the disputed language by the 1st party, the Ct will enforce the K in accordance w the innocent party’s meaning.
iii.                A determination of what each party knew or had reason to know of a diff. meaning attributed by the other is essential in a case where the Ct finds a lack of mutual assent.
iv.                 What does it mean to say the lot’s developed? Sewer, roads-considered developed. The dispute is about the whole clause: what does “developed” mean? “Vague” meaning is “not clear”, “fuzzy”. “Ambiguous” means there are alternative meanings, 2 meanings or more. First, Court decides it is ambiguous, then moves for determination of INTENT.
 
h.      Contra proferentem maxim of interpretation – contractual ambiguity should generally be resolved against the party who drafted the language. Employed in cases involving “adhesion” Ks. Adhesion K’s are K’s on a “take it or leave it” basis. Applied in situations of adhesion Ks. For example, once a policy holder in insurance proves a clause is ambiguous, then insurance policy holder wins. However, in Joyner they had equal bargaining position. Protracted negotiations.
 
i.        Frigaliment: (the chicken case-the issue is, what is chicken-broilers or fowls) The court must first conclude that the agreement is ambiguous to allow for the extrinsic evidence to be produced.
 
j.        Frigaliment the Court is trying to figure out what is ambiguous.
 
k.      Ambiguity: a term is ambiguous if it is capable of more than one meaning.
 
l.        2 types of ambiguity:  
1.      Patent or intrinsic ambiguity-an ambiguity that clearly appears on the face of a document, arising from the language itself. Example: the nonperformance was excused because the two different prices expressed in the contract created a patent ambiguity.
2.      Latent or extrinsic ambiguity-one not apparent from the words alone but visible in the light of surrounding circumstances. Objective evidence is permissible. Subjective evidence NOT permissible. Relevant trade usage controls over “plain meaning.” Example: the contract contained a latent ambiguity: the shipping terms stated that the goods would arrive on the Peerless, but two ships have that name. Corbin: the word standing alone is unambiguous but if you look at the circumstances it becomes ambiguous.
3.      Frigaliment Rule of Law: the party who seeks to interpret the terms f the contract in a sense narrower than their everyday use bears the burden of persuasion to so show, and if that party fails to support its burden, it faces dismissal of its complaint.
 
m.    Contextual approach to interpretation-under the modern theory of interpretation, a court should examine all relevant circumstances in interpreting the agreement, including preliminary negotiations and communications between parties.
 
n.      Ignorant party wins against knowing party. R2 §201
 
o.      When both parties knew of the differing intent, there is no K
 
p.      Frigaliment: there is a dispute because both parties raised the dispute. Look at the way the word is used in the contract. How did the parties use the term when they were negotiating? Written evidence. What did the German word mean? “Huhn” means both “broilers” and “stewing chicken.” In German the word is ambiguous. Sometimes the parties would specifically chose a certain language just for these reasons. A certain language is preferred. Holmes: words only really have a meaning in the context. Trade Usage is the world in which these parties operate. It’s further removed from a specific contracts language. For new entrants there is a plausible argument that these new entrants are not ful

reasonably anticipated was a policy requirement of visual evidence indicating the burglary was an “outside” not an “inside” job.
 
b.     Reasonable Expectations Doctrine is adopted by more than half the states.34 jurisdictions have accepted it in some form. Some require a presence of ambiguity to apply the doctrine. Sometimes applies when terms are manifestly inconsistent with purpose of transaction. FL court does not apply the doctrine: Deni Associates
 
c.      Many courts require a K to be ambiguous before they will admit extrinsic evidence to interpret the K. Added significance in the context of insurance policies. Not only is extrinsic evidence admissible to show the meaning of an ambiguous insurance policy, but that an ambiguous policy should be construed against the insurer and in favor of the insured.
 
d.   Adhesion Ks-include references to the employment of a standardized form and some degree of imbalance of bargaining power, involving a “take-it-or-leave-it” approach. 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.
 
1.            Todd Rakoff: the document contains many terms, is a printed form, purports to be a K.
2.            The form has been drafted by one party to the transaction.
3.            The drafting party enters in this type of transaction as a matter of routine.
4.            The drafting party will only enter into the transaction on the terms contained in the document.
5.            After the parties have dickered over whatever terms are open to bargaining, the document is signed by the adherent.
6.            The adhering party enters into few transactions of the type represented by the form-few, at least, in comparison with the drafting party.
7.            The principal obligation of the adhering party is the payment of money.
8.            Rakoff’s idea is to impose the burden of proof on the drafter of an adhesion K to show the reasonableness of the provision in question.
 
e.   3 variations in applying the doctrine: (a) when there is ambiguity; (b) when the “fine print” undermines more prominent expectations; (c) when overall circumstances or premium charges suggest reasonable expectations are negated
 
f.     Restatement formulation vs. the Keeton version of the doctrine
Keeton: The objectively reasonable expectations of applicants and intended beneficiaries regarding the terms of insurance contracts will be honored even though