Interpretation Flashcards
Interpretation
Interpretation is the process by which a court determines the meaning to give the language used by the parties in their contract to determine its legal effect.
Why do we need Interpretation
The goal is to understand the parties’ intentions and give effect to what they agreed upon. Sometimes, contracts can be unclear, ambiguous, or incomplete, so courts use rules and principles of interpretation to clarify the terms and enforce the contract.
Rule for Extrinsic Evidence
Extrinsic evidence can explain a contract’s meaning if relevant and supports a reasonable interpretation.
Even if the parol evidence rule blocks evidence, it can be admitted if it clarifies the contract’s meaning.
NY uses 4 corners test
- determine a contract’s meaning by examining only the written terms within the “four corners” of the document.
External evidence (like oral statements or prior agreements) is typically not admissible unless the contract is ambiguous.
The goal is to interpret the contract based on what is written without considering outside influences.
CA uses
uses all credible evidence of the parties’ intent in addition to contract language
Agreement based on common practices
An agreement is interpreted based on common practices if both parties were aware (or should have been aware) of the practice.
If one party’s understanding aligns with the usual practice, and the other party knows (or should know) about it, the second party is assumed to have understood as well.
Standard in industry
An agreement can be shaped by common industry practices if both parties know (or should know) about it, and neither is aware of the other wanting something different. If both are aware of the standard practice, the agreement will follow it unless one party knows the other has a different intention.
usage of trade
Trade usage is a common practice in an industry that people follow when making agreements. Even if rules change, the general pattern remains. Courts decide how to interpret written rules, and unless stated otherwise, industry practices will help interpret or add to the agreement.
Course of Dealing
Course of dealing is a pattern of behavior between two parties over time that helps establish a shared understanding. Unless agreed otherwise, this past behavior will be used to interpret or add to their current agreement.
Course of Performance
sequence of conduct refers to repeated occasions where one party performs, and the other party, knowing of the performance and having the chance to object, accepts it without objection.
Whose meaning prevails?
If both parties share the same understanding of a term, it’s interpreted that way. If they don’t agree:
It follows one party’s meaning if that party didn’t know the other had a different meaning, and the other knew their meaning.
Supplying an omitted essential term:
If two parties make a contract but don’t agree on an important term that’s needed to figure out their rights and responsibilities, the court will fill in that missing term with something reasonable based on the situation.
Interpretation against draftsman
When there are different reasonable meanings for a promise or term in an agreement, the meaning that goes against the person who wrote it or provided the words is usually preferred. This encourages clarity and fairness, making sure the party who created the agreement is held responsible for any vague or unclear terms.
Interpretation of Integrated agreement
- Courts focus on what the contract terms mean, using context and contract law rules.
- If facts or outside evidence matter, a judge or jury decides.
- If it’s just about legal meaning, the judge decides.
Court’s who follow – Plain meaning (follows 4 corners)
The whole contract is read to find its purpose and intent.
If the language is clear, outside evidence can’t be used to change its meaning.
Some courts still allow context to help with interpretation.
Other courts – contextual approach
consider all the proffered evidence before deciding whether the contract language is reasonably susceptible to the meaning claimed.
No precise meaning can be found from agreement –> look at surrounding circumstances & extrinsic evidence
such as:
- Parties’ discussions and conduct when they negotiated
- Conduct in performing
- Conduct in any prior agreements
- Custom and usage in the market
—->If these sources are not helpful in ascertaining the meaning of the disputed terms, the court next looks to rules applicable to similar contracts and considers supplementary rules, both statutory and common-law, to fill the gap.
UCC – Hierarchy of § interpretation
- statutory language and definitions,
- the Official Comments,
- judicial opinions,
- views of commentators and legal experts, 5. legislative history.
Hierarchy of Interpretation – for sale of goods
- Express language of agreement
- Surrounding circumstances
—–Course of Peformance
—–Course of dealing
——Trade Usage - Rules applicable to similar contracts – § gap fillers
- General rules of contract law – implied terms
- General Standards of reasonableness and good faith
- General rules of construction
