CHAPTER 2

The Elements

As indicated in Chapter 1, theories of contract interpretation tell us how to perform the interpretive tasks—identifying the terms to be interpreted, deciding whether the terms are ambiguous, and resolving any ambiguity that appears—to achieve the goals of contract interpretation— respecting the contractual freedoms, enhancing the security of transactions, settling disputes non-arbitrarily, and achieving reasonable administrability. More specifically, the theories tell us how to perform the tasks by licensing the use of different sets of interpretive elements in the interpre-

tive process.

The elements are the raw materials or resources for interpretation, categories of evidence that judges and juries may take into account when performing the interpretive tasks. All of them should be considered as they bear on ascertaining the parties’ intention, the “polestar” of contract interpretation, as well as the other goals.1 The elements can be grouped usefully in terms of the three theories. Thus, literalism licenses the use only of the contract’s words and the dictionary. Objectivism licenses, in addition, the contract as a whole, the circumstances at formation bearing on the parties’ objective intentions, the document’s purpose(s), ordinary meanings, trade usages and customs, legal precedents and practical constructions (courses of performance). Subjectivism licenses, in addition

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