Contract Interpretation - Class

Textualism

Contextualism

• "Four Corners" Rule

• Under this interpretation doctrine, before extrinsic evidence of the context may be considered, ambiguity must be apparent on the face of agreement.

• Ambiguity

• Such an ambiguity is typically called “patent,” “intrinsic,” or “facial.”
• But “patent” is the best term.

• Typically called “patent,” “intrinsic,” or “facial.”
• But “patent” is the best term.

(1) The court assesses whether the contract is ambiguous. (2) Resolve the ambiguity which is a question of law.

The "Four Corners Rule"

All evidence other than the words of the contract and dictionaries is considered "extrinsic evidence".

Examples include (a) documents from and testimony regarding the preliminary negotiations, and (b) testimony regarding industry practice.

• Stage 1: The Ambiguity Determination
• Question of law for the judge — based on the contract alone (i.e., based on the "four corners" of the contract); extrinsic evidence is not allowed.
• If the rest of the contract is unambiguous, apply the unambiguous or "plain" meaning.

• Stage 2: Resolve Ambiguity
• Decision based on the text of the contract and all relevant extrinsic evidence.
• Judge resolves the ambiguity if the textual and extrinsic evidence overwhelming supports one side.
• Judge resolves the ambiguity if a reasonable jury could rule for either side given the textual and extrinsic evidence.

• Under contextualism, extrinsic evidence of the context may be used to establish the existence of an ambiguity.
• Such an ambiguity is typically called “latent” or “extrinsic.”
• But “latent” is the best term.

• Under contextualism, extrinsic evidence of the context that may be used to establish the existence of an ambiguity.

• Textualism = Patent ambiguities
• Contextualism = Patent and Latent ambiguities.

• Difference happens at stage 1; "how it's conducted."
• Put simply, textualism cares about patent ambiguities, whereas contextualism recognizes both patent and latent ambiguities.

• Uncertainty on the face of a legal document.
• Gives the agreement or contract an indefinite meaning.
• When a document includes this type of ambiguity, no external evidence can show the testator's intention, which remains unclear.
• May invalidate an agreement or contract.
• Exists only when the language is in fact vague or contains an either/or problem.

• Extrinsic evidence
• Have to have outside evidence.

(1) Vagueness
(2) Either/or

Exists when the ambiguity concerns a question of degree.

(1) “Term Ambiguities" involve individual words or short phrases.
(2) “Syntax Ambiguities” involve a question of whether a modifying word or clause pertains to a part of a sentence.
(3) "Structual Ambiguities" apply to entire contracts.

Even if both parties assert that a contract is unambiguous, a court may [still] hold that [the] contract is ambiguous.”

• In such cases, the court can reach one of four rulings at stage one:

(1) the contract unambiguously means what the plaintiff claims;
(2) the contract unambiguously means what the defendant claims;
(3) the contract unambiguously means something in between what the two parties claim; or
(4) the contract is ambiguous and the matter must proceed to stage two.

Subjective Standards

Objective Standards

The test applied by the law to words and to other manifestations of intention in order to determine the meaning to be given to them.

Focuses on what a reasonable person would understand the contract to mean given the text and some or all of the relevant extrinsic evidence.

Focuses on the actual intent of the parties.
Under subjectivism, the contract means what one or both of the parties actually understood it to mean when they formed the contract.

• Objective Standards care what a RP would think, not what the parties actually think.
• Subjective Standards focus on the actual understanding of the parties, not what a RP would think.
• What matters is what a RP would've thought (objective) or what the parties actually thought (subjective) when the contract was entered.

True

All of the objective and subjective standards are applied as of the time the contract was entered into.

• The “Comprehensive Objective Standard.”
• "What would a RP understand the contract to mean if that person was familiar with the surrounding circumstances, including the contract, standard English, industry practice, the parties’ preliminary negotiations, and other aspects of the context.

• It's comprehensive b/c the court considers the agreement's language, dictionaries, and all (or virtually all) extrinsic evidence in deciding the contract's objective meaning.

• "What would a RP understand the contract to mean if that person was familiar with the surrounding circumstances, with all the evidence including the contract, standard English, industry practice, the parties’ preliminary negotiations, and other aspects of the context.

• It's comprehensive b/c the court considers the agreement's language, dictionaries, and all (or virtually all) extrinsic evidence in deciding the contract's objective meaning.

• Actual Knowledge
• Constructive Knowledge
• No Knowledge

Exists where Text of Contract is Reasonably Susceptible to more than one meaning.

• The judge must first determine whether a reasonable jury could rule for either party under the governing standard.
• If not—if a rational jury would necessarily decide for one party—then the court will resolve the ambiguity itself and find that the contract means what that party contends it means.
• If so—if a rational jury could decide for either party—then the case goes to the jury to resolve the ambiguity.

• If so—if a rational jury could decide for either party—then the case goes to the jury to resolve the ambiguity.

• If not—if a rational jury would necessarily decide for one party—then the court will resolve the ambiguity itself and find that the contract means what that party contends it means.