11 George Mason School of Law Contracts II Interpretation Not
to be shared F.H. Buckley [email protected]
Slide 2
Terms and Interpretation Terms: May we look outside a writing
to supplement it with additional terms? Interpretation: May we look
outside a writing to interpret the meaning of the words of the
writing? 2
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Terms and Interpretation Terms Interpretation Which was
Masterson at 550? an option to purchase 3
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4 Sometimes theres no common meaningand no contract Raffles v.
Wickelhaus at 572 The Peerless
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5 Sometimes theres no common meaningand no contract 125 bales
of Surat cotton, ex Peerless from Bombay: Raffles v. Wickelhaus The
Peerless
Slide 6
6 Sometimes theres no common meaningand no contract Whats a
court to do, in that case?
Literary Interpretation Subjective: Authorial Intention There
is a meaning, and it is the authors meaning To be derived by
seeking evidence about his motivation from a knowledge of his
background and influences 8
Slide 9
Literary Interpretation Objective Privileges the reader: There
is a meaning but the authors intention is irrelevant. Only the
words of the text matter. 9
Slide 10
Two kinds of Originalism in Constitutional Law Subjective:
Original Intent Originalism The Records of the Philadelphia
Convention Objective: Original Meaning Originalism What would an
ordinary reader in 1787 have made of the words of the Constitution
10
Slide 11
At Contract Law Subjective: Contextualism Find out what the
parties might have meant by looking at all background evidence
Objective: Textualism Dont look outside the words of the contract:
Plain Meaning 11
Slide 12
Terms and Interpretation Writing onlyOral Evidence TermsParol
Evidence Rule: Burke in Masterson Unintegrated Agreements: Traynor
in Masterson 12
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Terms and Interpretation Writing onlyOral Evidence TermsParol
Evidence Rule: Burke in Masterson Unintegrated Agreements: Traynor
in Masterson InterpretationTextualismContextualism 13
Slide 14
14 Textualism in New York WWW v. Giancontieri at 569 What did
clause 31 provide? 14
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15 Textualism in New York WWW v. Giancontieri at 569 What was
the reason for clause 31? Why might the buyer want to exercise the
cancellation right? 15
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16 Textualism in New York WWW v. Giancontieri at 569 What was
the reason for clause 31? Why might the seller want to exercise the
cancellation right? 16
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17 Textualism in New York WWW v. Giancontieri at 569 What was
the reason for clause 31? Why might the seller want to exercise the
cancellation right? Does that matter? 17
Slide 18
18 The Limits of Textualism: In re Soper 573 18
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19 In re Soper 573: to my wife On objective or plain meaning
standards, who is the wife? 19
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20 In re Soper: to my wife On objective or plain meaning
standards, who is the wife? On subjective or contextualist
standards, who is the wife? 20
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21 In re Soper: to my wife On objective or plain meaning
standards, who is the wife? On subjective or contextualist
standards, who is the wife? To hold otherwise would give the word a
fixed symbol 21
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22 In re Soper How might Soper have cured the problem? 22
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23 In re Soper How might Soper have cured the problem? to my
wife, Gertrude Whitby Young So why didnt he? 23
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24 In re Soper: to my wife Did the insurer know about Adeline?
And what if it had simply paid out to Gertrude? 24
Slide 25
25 Pacific Gas 574 25 Roger Traynor
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26 Pacific Gas 574 Why did Pacific Gas sue in Contract? 26
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27 Pacific Gas 574 What did the indemnity clause state? 27
Slide 28
28 Pacific Gas What did the indemnity clause state? What does A
indemnifies B mean? 28
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29 Pacific Gas What did the indemnity clause state? What does A
indemnifies B mean? A compensates B for claims asserted by C
against B and caused by A? 29
Slide 30
30 Pacific Gas What did the indemnity clause state? What does A
indemnifies B mean? A compensates B for claims asserted by C
against B Qu. A compensates B for losses incurred by B and caused
by A? 30
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31 Pacific Gas What did the indemnity clause state? What does A
indemnifies B mean? A compensates B for claims asserted by C
against B Qu. A compensates B for losses caused by A Just how would
you expect damage to arise in any way connected with the
performance of this contract? 31
Slide 32
32 Pacific Gas What did the indemnity clause state? What does A
indemnifies B mean? A compensates B for claims asserted by C
against B Qu. A compensates B for losses caused by A. What did the
trial court hold? A plain language standard 32
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33 Pacific Gas What did the indemnity clause state? What does A
indemnifies B mean? A compensates B for claims asserted by C
against B Qu. A compensates B for losses caused by A. And Traynor?
You can see this coming, cant you? 33
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34 Pacific Gas Traynor rejects textualism Primitive faith in
magic words 34
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35 Pacific Gas: Footnote 2 "The elaborate system of taboo and
verbal prohibitions in primitive groups; the ancient Egyptian myth
of Khern, the apotheosis of the words, and of Thoth, the Scribe of
Truth, the Giver of Words and Script, the Master of Incantations;
the avoidance of the name of God in Brahmanism, Judaism and Islam;
totemistic and protective names in mediaeval Turkish and
Finno-Ugrian languages; the misplaced verbal scruples of the
'Precieuses'; the Swedish peasant custom of curing sick cattle
smitten by witchcraft, by making them swallow a page torn out of
the psalter and put in dough....' from Ullman, The Principles of
Semantics (1963 ed.) 43. (See also Ogden and Richards, The Meaning
of Meaning (rev. ed. 1956) pp. 24- 47.) 35
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36 Thoth Rules! 36 The Giver of Words
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37 Pacific Gas Traynor rejects textualism Primitive faith in
magic words Can one draft ones way around this? 37
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38 Pacific Gas Traynor as a deconstructionist Primitive faith
in magic words Can one draft ones way around this? Really? 38
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39 Pacific Gas What do you think Traynor would have done had
the trial judge ruled that the plain meaning of the contract was
just the opposite? that the indemnity clause didnt apply? 39
Slide 40
40 Alex Kozinski and New Textualism
Slide 41
41 Trident Center at 577 The Trident Center, West LA 41
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42 Kozinski and New Textualism The Trident Center 42 Completed
in 1983, Trident Center consists of two, steel-framed, 10-story
office towers containing approximately 383,000 square feet and
connected by a five-level parking structure. Trident Center is
situated on approximately 3.6 acres of beautifully landscaped
common areas rich with tenant amenities.
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43 Yeah, right 43
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44 Trident Center Maker shall not have the right to prepay for
the first 12 years. 44
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45 Trident Center Maker shall not have the right to prepay for
the first 12 years. So: Does maker have the right to prepay after
four years? 45
Slide 46
46 What happened to interest rates 46
Slide 47
47 Trident Center In the event of prepayment resulting from a
default the prepayment fee will be 10 percent. But whose option?
47
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48 Trident Center Which is dispositive and why? What if Trident
stopped making payments to trigger a default? Does Connecticut have
an option? 48
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49 Trident Center Was this between sophisticated parties?
49
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50 Trident Center Mitchell Silberberg & Knupp web site:
CORE SERVICES: Commercial Properties Represent purchasers and
sellers of commercial property as well as owners, developers,
investors and contractors in planning, zoning, entitling,
financing, development, construction of commercial, industrial,
retail, residential and hotel projects. 50
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51 Trident Center Manat Phelps Law Firm: Manatt's attorneys
have a broad background in all areas of real estate, land use and
hospitality. Our professionals are among the premier real estate
and development advisors in the nation 51
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52 Trident Center Was this between sophisticated parties Were
they really much less so in Pacific Gas? Hunt Foods? 52
Slide 53
Going outside the writing Writing onlyOral Evidence Terms
Interpretation 53
Slide 54
Going outside the writing Writing onlyOral Evidence TermsParol
Evidence Rule: Burke in Masterman The Four Corners Rule Complete
Integration Effective Merger Clauses Interpretation 54
Slide 55
What has been promised? Writing onlyOral Evidence TermsParol
Evidence Rule: Burke in Masterman Unintegrated Agreements Partial
Integration Traynor on the need to refer to oral evidence to prove
intergration The fraud exception Interpretation 55
Slide 56
What has been promised? Writing onlyOral Evidence TermsParol
Evidence Rule: Burke in Masterman Unintegrated Agreements
InterpretationTextualism: WWW v. Giancontieri 56
Slide 57
What has been promised? Writing onlyOral Evidence TermsParol
Evidence Rule: Burke in Masterman Unintegrated Agreements
InterpretationTextualismContextualism Traynor in Pacific Gas
57
Slide 58
58 When does it make least sense to admit oral evidence?
Slide 59
59 When does it make least sense to admit oral evidence?
Idiosyncratic bargains and the courts information problem
Slide 60
60 When does it make least sense to admit oral evidence?
Idiosyncratic bargains The alleged oral terms would be harsh and
unusual (e.g. cancellation rights in Snyder at 565)
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61 When does it make least sense to admit oral evidence?
Idiosyncratic bargains Harsh terms Sophisticated parties (e.g.
Pacific Gas)
Slide 62
62 When does it make least sense to admit oral evidence?
Idiosyncratic bargains Harsh terms Sophisticated parties
Non-standard terms
Slide 63
63 When does it make least sense to admit oral evidence?
Idiosyncratic bargains Harsh terms Sophisticated parties
Non-standard terms Merger clauses
Slide 64
64 When does it make Most sense to admit oral evidence?
Slide 65
65 When does it make most sense to admit oral evidence? The
transaction costs of inclusion? When these are high, courts might
be more likely to admit parol evidence
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66 When does it make most sense to admit oral evidence? The
transaction costs of inclusion? Unsophisticated parties
Slide 67
67 Now: Canons of interpretation Express Terms Course of
performance Course of dealing Trade Usage 67
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68 Express Terms Restatement 203(d) Give greater weight to
specifically negotiated over standard terms 68
Slide 69
69 Express Terms Restatement 203(c) Prefer specific terms over
general terms Inclusio unius est exclusio alterius 69
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70 Canons of interpretation Restatement 203(b) Express terms
> course of performance, course of dealing, trade usage Course
of performance > course of dealing, trade usage Course of
dealing > trade usage 70
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71 Canons of interpretation Restatement 203(b) Express terms
> course of performance, course of dealing, trade usage Course
of performance > course of dealing, trade usage Course of
dealing > trade usage Snyder p. 565: what was the course of
dealing? 71
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72 Trade customs Frigalment p. 585 What were the express terms?
72
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73 Trade customs Frigalment p. 585 What were the express terms?
fresh frozen chicken, Grade A Which might have meant? 73
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74 Trade customs Frigalment p. 585 What were the express terms?
fresh frozen chicken, Grade A Which might have meant? fowl or
stewing chicken, or Broiler chicken 74
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75 Trade customs Frigalment p. 585 What was the trade usage?
75
Slide 76
76 Trade customs Frigalment p. 585 What was the trade usage?
Higher grade broiler chicken 76
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77 Trade customs Why was the trade usage rejected? 77
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78 Trade customs Why was the trade usage rejected? Seller was
new to the trade 78
Slide 79
79 Trade customs Frigalment p. 585 Who was best able to fix
this? 79
Slide 80
80 Sunshine Biscuits at 606 Why a different result? 80
Slide 81
81 Interpretation under UCC 2-202 Terms with respect to which
the confirmatory memoranda of the parties agree or which are
otherwise set forth in a writing intended by the parties as a final
expression of their agreement with respect to such terms as are
included therein may not be contradicted by evidence of any prior
agreement or of a contemporaneous oral agreement but may be
explained or supplemented (a) by a course of dealing or usage of
trade (Section 1- 205) or by course of performance (Section 2-208);
and
Slide 82
82 Interpretation under UCC 2-202 Terms with respect to which
the confirmatory memoranda of the parties agree or which are
otherwise set forth in a writing intended by the parties as a final
expression of their agreement with respect to such terms as are
included therein may not be contradicted by evidence of any prior
agreement or of a contemporaneous oral agreement but may be
explained or supplemented (a) by a course of dealing or usage of
trade (Section 1- 205) or by course of performance (Section 2-208);
and Is this more liberal than the Restatement?
Slide 83
83 UCC 2-208. Course of Performance (1) Where the contract for
sale involves repeated occasions for performance by either party
with knowledge of the nature of the performance and opportunity for
objection to it by the other, any course of performance accepted or
acquiesced in without objection shall be relevant to determine the
meaning of the agreement. (2) The express terms of the agreement
and any such course of performance, as well as any course of
dealing and usage of trade, shall be construed whenever reasonable
as consistent with each other; but when such construction is
unreasonable, express terms shall control course of performance and
course of performance shall control both course of dealing and
usage of trade
Slide 84
84 UCC 1-205. Course of Dealing and Usage of Trade (1) A course
of dealing is a sequence of previous conduct between the parties to
a particular transaction which is fairly to be regarded as
establishing a common basis of understanding for interpreting their
expressions and other conduct. (2) A usage of trade is any practice
or method of dealing having such regularity of observance in a
place, vocation or trade as to justify an expectation that it will
be observed with respect to the transaction in question. The
existence and scope of such a usage are to be proved as facts. If
it is established that such a usage is embodied in a written trade
code or similar writing the interpretation of the writing is for
the court.
Slide 85
85 Canons of interpretation UCC 2-208(2) Express terms >
course of performance, course of dealing, trade usage Course of
performance > course of dealing, trade usage Course of dealing
> trade usage 85
Slide 86
86 UCC 2-208. Course of Performance and Waivers (3) Subject to
the provisions of the next section on modification and waiver, such
course of performance shall be relevant to show a waiver or
modification of any term inconsistent with such course of
performance..
Slide 87
87 UCC 2-202(a) and waivers Do several waivers of contractual
rights amount to a course of dealing? Would you expect that waivers
are frequent amongst relational parties?
Slide 88
88 Columbia Nitrogen 595 88
Slide 89
89 Columbia Nitrogen 595 89 Columbia Royster
Slide 90
90 Columbia Nitrogen 595 Buyer agrees to purchase and seller
agrees to furnish quantities on the following terms Products
Supplied Under Contract Minimum Tonnage per year 90
Slide 91
91 Columbia Nitrogen 595 91 Columbia Royster Minimum 31,000
tons yr/3 yrs
Slide 92
92 Columbia Nitrogen Who took the risk of price fluctuations?
92
Slide 93
93 Columbia Nitrogen Who took the risk of price fluctuations?
What did the escalation clause cover? 93
Slide 94
94 Columbia Nitrogen Who took the risk of price fluctuations?
How was the merger clause drafted? 94
Slide 95
95 Columbia Nitrogen Who took the risk of price fluctuations?
What did the default clause specify? 95
Slide 96
96 Columbia Nitrogen Who took the risk of price fluctuations?
What was the course of dealing where Royster was the buyer? Trade
Usage? 96
Slide 97
97 Columbia Nitrogen Who took the risk of price fluctuations?
What was the course of dealing where Royster was the buyer? Trade
Usage? Was the express language inconsistent with this? 97
Slide 98
98 Columbia Nitrogen Who took the risk of price fluctuations?
What was the course of dealing where Royster was the buyer? Trade
Usage? As between the parties, who was in the best position to
predict price fluctuations? 98
Slide 99
99 Columbia Nitrogen Who took the risk of price fluctuations?
What was the course of dealing where Royster was the buyer? Trade
Usage? Do you agree with Vic Goldberg at 604? 99
Slide 100
100 Southern Concrete 600 100 Power Plant, Carrolton GA
102 Southern Concrete 600 How to distinguish from Columbia
Nitrogen? 102
Slide 103
103 Southern Concrete How to distinguish from Columbia
Nitrogen? The equities? No prior dealing here. Contract default
clause? Escalation clause? 103
Slide 104
104 Southern Concrete How to distinguish from Columbia
Nitrogen? The risk was not a change of price but a change in the
quantity buyer would need 104
Slide 105
105 Southern Concrete How to distinguish from Columbia
Nitrogen? The risk was not a change of price but a change in the
quantity buyer would need Who is in the best position to determine
that? 105
Slide 106
106 Southern Concrete Evenfield on contractual enforcement Why
might a course of dealing not tell us much When is a waiver just a
one-shot waiver? 106
Slide 107
107 Southern Concrete Evenfield on contractual enforcement Why
not put the parties to the election of negativing customs and
usages? Cf. merger clause at 605 107
Slide 108
108 Doppelt, p. 608 Dealer 1 Dealer 2 Consumer 108 Title not to
pass to consumer unless Dealer 1 consents
Slide 109
109 The UCC on passing of title The nemo dat rule of UCC
2-403(1) A purchaser of goods acquires all title which his
transferor had or had power to transfer [and in principle nothing
more] Nemo dat quod non habet 109
Slide 110
110 The UCC on passing of title The exception for entrustment A
purchaser of goods acquires all title which his transferor had or
had power to transfer 110
Slide 111
111 The UCC on passing of title The entrustment exception of
UCC 2-403(2) (2) Any entrusting of possession of goods to a
merchant who deals in goods of that kind gives him power to
transfer all rights of the entruster to a buyer in ordinary course
of business. 111
Slide 112
112 Doppelt, p. 608 Dealer 1 Dealer 2 Consumer 112 Dealer 2 can
pass good title to consumer buyer in the ordinary course
notwithstanding a secret reservation of title by Dealer 1