CONTRACTS I
10.22.09
Chapter 5: Principles of Interpretation
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Interpretation- the process by which a court gives meaning to contractual
language when the parties attach materially different meanings to that language
Construction- the judicial role in determining the legal effect of that language
Holmes Objective Interpretation (old)
o Words and conduct should be interpreted in accordance with the
standard of a reasonable person familiar with the circumstances, rather
than in accordance with the subjective intention of either of the parties
o Defends his approach
 The subjective approach made enforcement of contracts too
difficult
 The external method was fair because a speaker should always
expect this words to be understood in accordance with their
normal usage
Modern Contract Law
o Questions to answer when interpreting a contract
 Whose meaning controls the interpretation of the contract?
 What was that party’s meaning?
o In many cases
 The crucial issue in interpreting a contract is whether one party
knew (or had reason to know) of the meaning attached to the
contract by another
 IF SO, the party having knowledge or reason to know is
bound by the meaning of the other
o Rest 2d §201. Whose Meaning Prevails
 Where the parties have attached the same meaning to a promise
or agreement or a term thereof; it is interpreted in accordance
with that meaning
 Where the parties have attached different meanings to a promise
or agreement or a term thereof, it is interpreted in accordance
with the meaning attached by one of the them if at the time the
agreement was made
 That party did not know of any different meaning attached
by the other, and the other kew the meaning attached by
the first party; or
 That party had no reason to know of any different
meaning attached by the other, and the other had reason
to know the meaning attached by the first party
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Except as stated in this Section, neither party is bound by the
meaning attached by the other, even though the result may be a
failure of mutual assent
NOTE:
o Ambiguous term
 TERM does not equal WORD
 Term is a length in a provision
Joyner v. Adams p. 352
o PH
o  wins
o ISSUE
o Should the contract be construed against Plaintiff as the drafter?
o FACTS
o 1972: Contract w/Brown
 Annual rent, increase according to wholesale price index
o 1975: Lease amended with new contract w/ (Adams)
 Pay fixed rate until 9.30.1980
 If  was to break contract, the amendment required him
to pay, retroactively, the amount of rent which would have
been due under the terms of the Base Lease
o 9.30.1980:  develeloped all lots but one
o 9.27.1983:  files suit
  filed this action claiming  failed to comply with the
requirements of the lease for developing the property and
seaking to recover the difference between the actual, fixed
rent paid by defendant and the rent computed under the
terms of the Base Lease
  wins on the basis that there was no meeting of the
minds
o $93,695.75 in damages
o 7.5.1985:
Trial court judgment reversed
o  leased property to Brown. The property was to be subdivided and the
rent would increase over the term of the lease. In 1975, Brown had some
financial difficulties so Defendant was substituted. The rent increase was
suspended for a time to allow Defendant to subdivide the property.
Defendant was to complete the subdivision during the suspension of the
rate increase. If the subdivision was not completed, Defendant would be
liable for the rent increases that would have occurred during the
suspension. At the end of the suspension, all of the lots but one had
buildings and separate lot leases. The remaining lot had been graded, had
water and sewer lines, and all driveways and roads leading to the lot
were built. The parties disagree as to whether Defendant met the
subdivision requirement of completed development for suspending the
lease.
o HOLD
o No. The contract should not be construed against  as the drafter.
o The lower court came to its decision by applying the maxim of construing
ambiguous terms against the drafter. The Court states that this is a rule
of contract construction and does not apply to interpretation. The Court
further notes that it is unclear whether Plaintiff was in fact the drafter of
the provision.
o The Court instructs that on remand, the trial court should apply Plaintiff's
meaning if Defendant had reason to know of Plaintiff's meaning and
Plaintiff did not have reason to know of Defendant's meaning. If such a
finding is not made, the Court instructs the trial court that Plaintiff's claim
must fail.
o REAS
o  (Joyner) leased property to () Adams. The lease provided for
suspension of a rent increase for a specified time if there was complete
development of the subdivision during that time.
o Contract construction does not parallel contract interpretation.
o Appeals held that the maxim construing a contract provision against the
drafter was not properly applied for two reasons.
 The maxim applies to contract construction, not contract
interpretation.
 It is unclear whether Plaintiff actually drafted the
provision.(CaseNote)
Frigaliment Importing Co. v. B.N.S. International Sales Corp.
o ISSUE
o Does the term "chicken" in the contract mean only younger chicken?
o FACTS
o  contracted to sell chicken to Plaintiff.
o Both contracts indicated that  was selling specified amounts of 2 ••• - 3 lb.
chickens and 1 1/2 - 2 lb. chickens.
o When the fist shipment was sent, Plaintiff found that the heavier chickens
were not young chickens suitable for broiling or frying, but older stewing
chicken.
o The parties disagree as to what the term "chicken" in the contract means.
o HOLDING
o No. The term "chicken" in the contract did not mean only younger chicken.
o The Court holds that the because 's definition coincides with the objective
meaning, one of the dictionary definitions, the Department of Agriculture's
regulations referenced in the contract, some trade usage, the realities of the
market, and statements by Plaintiff's spokesperson, Plaintiff has not met its
burden of showing that the narrower definition of the term applies.
o REAS
o  did not meet its burden of showing that its interpretation of the term
"chicken" should control when all of the factors are considered.
o In determining what a term means the court will consider (in order of
importance): (1) the language of the contract, (2) the preliminary
negotiations, (3) trade usage, (4) legal standard, (5) course of performance,
and (6) maxims.
o The smaller chickens had to be younger chickens, because older chickens do
not come in that size. Because the smaller chickens had to be younger
chickens,  argues that the larger chickens also had to be young.
o  also argues that trade usage of the term "chicken" is to indicate a young
chicken. However, there was conflicting evidence as to whether "chicken"
only means a young chicken in the trade.
o One maxim is that a reasonable construction is preferred over an
unreasonable construction.  alleges that to sell younger chicken to  at the
contract price would result in a loss to the .
 Under the 's construction the contract would result in  selling
chicken at a loss,  argues that 's definition of "chicken" is
unreasonable. (CaseNote)