Contract Interpretation Guide
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This document provides an overview of the law of contract interpretation through a series of lessons. It discusses determining the meaning of agreements, ambiguity, rules of interpretation like extrinsic evidence, canons of construction, public policy considerations, the adoption and effect of integrated agreements, implied terms, conditions, satisfaction, and waiver. The goal is to understand what agreements mean in order to determine if parties performed or breached their obligations.
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Contract Interpretation Guide
- 1. THE LAW OF CONTRACT INTERPRETATION: A REVIEW Professor Seth C. Oranburg
- 2. Contract Interpretation Meaning of Agreements Determining Ambiguity Rules in Aid of Interpretation Canons of Construction Public Policy Effect of a Writing Scope of a Writing Effect of an Integrated Agreement Implied Terms Good Faith Express Conditions Conditions of Satisfaction Waiver and Excuse of Conditions
- 3. LESSON B: THE MEANING OF AGREEMENTS Contract Interpretation
- 5. In-contract definitions Express references Reasonable Common Sense Course of performance Course of dealing Usage of trade Preliminary negotiations
- 11. LESSON D: RULES IN AID OF CONTRACT INTERPRETATIO N Contract Interpretation
- 12. Extrinsic Evidence COURSE OF PERFORMANCE COURSE OF DEALING USAGE OF TRADE PAROL EVIDENCE
- 13. LESSON E: THE CANONS OF CONSTRUCTION Contract Interpretation
- 14. The 13+1 Canons of Construction Use dictionary Meaning Use technical meanings Interpret writings as whole Give force to every term Specific terms over general Interpret words consistently Interpret words in context Specifics limit general lists Added terms > boilerplate Expression of one implies exclusion of the other Avoid illegality Follow rules of grammar Last antecedent rule Construe against the drafter
- 16. R.205 Duty of Good Faith and Fair Dealing ■Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.
- 18. GOOD FAITH IN OUTPUT CONTRACTS AnchorGlass
- 19. R.206 Interpretation Against the Draftsperson ■ In choosing among the reasonable meanings of a promise or agreement or a term thereof, that meaning is generally preferred which operates against the party who supplies the words or from whom a writing otherwise proceeds.
- 20. CONTRA PROFERENTEM A last resort to policy, should all semantic canons fail.
- 22. R.207 Interpretation Favoring the Public ■ In choosing among the reasonable meanings of a promise or agreement or a term thereof, a meaning that serves the public interest is generally preferred.
- 24. LESSON G: ADOPTION OF A WRITING Contract Interpretation
- 25. Draft Final Complete and Final Unintegrated Partially Integrated Fully Integrated Writings
- 27. DISPOSITIVE EFFECTTO INTRINSIC EVIDENCE (MERGER CLAUSE) UAW
- 28. EXTRINSIC EVIDENCETRUMPS INTRINSIC (MERGER CLAUSE) Sierra Diesel
- 30. MCP Factors for Extrinsic Evidence of Contract Integration PARTIESARE SOPHISTICATED SIMILAR BARGAINING STRENGTH LIMITED WARRANTIES SIGNEDAND DATED ACKNOWLEDGED REVIEWED BY COUNSEL
- 31. LESSON H: SCOPE OF AN INTEGRATED AGREEMENT Contract Interpretation
- 32. R.213(2) Effect of Integrated Agreement on Prior Agreements ■A binding completely integrated agreement discharges prior agreements to the extent that they are within its scope.
- 33. SCOPE OF AGREEMENT Seagram &Sons
- 34. LESSON I:THE EFFECT OF INTEGRATED AGREEMENTS Contract Interpretation
- 35. The Parol Evidence Rule (PER) ■ Bars evidence of prior negotiations that alter final written terms ■ Bars evidence of prior negotiations that add terms to a fully integrated agreement
- 36. PER Summary Chart The contract is “completely integrated” (exclusive) The contract is “partially integrated” (final) Add Term Modify Term Admit Evidence Bar Evidence Bar Evidence Bar Evidence Collateral Term The contract is “unintegrated” (draft) Admit Evidence Admit Evidence Admit Evidence Admit Evidence Admit Evidence Subsequent Modification Explain Term Defective Formation UCC: CP, CD, TU
- 38. Sources of ImpliedTerms FACTS COMMON LAW STATUTORY LAW GOOD FAITH
- 39. TERMS IMPLIED IN FACT Congregation B’NaiYitzhok
- 40. TERMS IMPLIED IN COMMON LAW Methodist Home
- 41. Terms Implied in Statutory Law ■ If nothing is said as to price, the contract price is a reasonable price (usually fair market value) at the time of delivery. (§ 2-305) ■ Goods will be delivered in a single lot (not multiple lots) if no selection is made in the contract. (§ 2-307) ■ If no place of delivery is specified, goods will be delivered to the seller’s place of business, or, if none exists, to seller’s residence. But if the parties know at the time of contract formation that the goods are elsewhere, the place of delivery is where the goods are. (§ 2-308) ■ The time for delivery, shipment, or other contractual actions is “a reasonable time” if no time is specified. (§ 2-309) ■ The goods are covered by Article 2’s implied warranties, unless the seller disclaims the warranties effectively. (§§ 2-314, 2-315)
- 42. LESSON K: TERMS IMPLIED IN GOOD FAITH Contract Interpretation
- 43. R.205 Duty of Good Faith and Fair Dealing ■Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.
- 44. THE DOCTRINE OF GOOD FAITH Lucy, Lady Duff-Gordon
- 45. GOOD FAITH IN CONTRACT PERFORMANCE Market Street Assoc.
- 46. GOOD FAITH IN TERMINATION CLAUSES Questar
- 47. GOOD FAITH TERMINATION OF ORAL AGREEMENTS ALCOA
- 48. Good FaithContracts set in motion a cooperative enterprise Yet complex contracts are inherently incomplete The duty of good faith fills these gaps and prevents taking advantage through the courts You cannot take deliberate advantage of an oversight by your contract partner
- 52. CONDITIONS SHIFTTHE RISK OF UNCERTAINTY
- 54. Types of Conditions Express Implied
- 55. R.225(1) Effects of the Non- Occurrence of a Condition ■Performance of a duty subject to a condition cannot become due unless the condition occurs or its non- occurrence is excused.
- 56. R.225(2) Effects of the Non- Occurrence of a Condition ■Unless it has been excused, the non- occurrence of a condition discharges the duty when the condition can no longer occur.
- 57. R.225(3) Effects of the Non- Occurrence of a Condition ■Non-occurrence of a condition is not a breach by a party unless he is under a duty that the condition occur.
- 58. EFFECT OF NON-OCCURRENCE OF A CONDITION Morrison
- 59. Promissory Conditions ■When a party does have a duty to perform a condition, it is called a “promissory condition.” ■See Internatio-Rotterdam, Inc.
- 61. R.226 How an Event May Be Made a Condition ■An event may be made a condition either by the agreement of the parties or by a term supplied by the court.
- 66. PREFERENCE FOR OBJECTIVE SATISFACTION Morin Building
- 67. Standards of Satisfaction Objective ■ Commercial value ■ Commercial quality ■ Operative fitness ■ Mechanical utility ■ Relatively mechanical or routine ■ Preferred when practical Subjective ■ Fancy ■ Personal taste ■ Aesthetics ■ Judgment ■ Feasibility ■ Express ■ Objective standard impracticable
- 68. Standards of Satisfaction Objective ■ Would a reasonable person in the position of the obligor be satisfied? Subjective ■ Is the person in question actually satisfied? ■ In good faith ■ “under the subjective standard, the promisor can avoid the contract so long as he is genuinely, albeit unreasonably, dissatisfied”
- 69. LESSON N: WAIVER AND EXCUSE OF CONDITIONS Contract Interpretation
- 70. R.229 Excuse of a Condition to Avoid Forfeiture “Elements” ■ a court ■ may ■ excuse the non-occurrence of a condition ■ to the extent that the non- occurrence of that condition would cause “disproportionate forfeiture,” ■ unless its occurrence was a “material part” of the agreed exchange.
- 73. Types of Waiver Express Implied
- 75. Conclusions ■Contract interpretation is the study of the meaning of agreements ■Understanding what an agreement means is prerequisite to determining whether contractual parties performed or breached their obligations