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again, all relevant evidence, including any prior course of dealing between the parties, the course of negotiations, testimony by a party about its own intentions, and circumstances bearing on the parties’ subjective intentions.
This chapter will explain and illustrate these elements generally. It will conclude by looking at some additional general considerations that are not elements, which are factual, but guides for interpretation, which are legally normative. Throughout this chapter, the assumption, unless otherwise specified, is that the relevant task is that of resolving an ambiguity. Most courts will admit all relevant evidence in connection with this task, as we will see in Chapter 5. When courts identify terms or determine whether there is an ambiguity, by contrast, the set of allowable elements often is more restricted, as we will see in the next two chapters.
2.1. Literalist Elements
Literalism allows an interpreter to take into account only the words of contracts and the dictionary. Professors Alan Schwartz and Robert E. Scott, leading economic analysts of contract law, advocate literalism when interpreting firm-to-firm contracts. They would license the use only of the following elements:
the parties’ contract, a narrative concerning whether the parties performed the obligations that the contract appears to require, a standard English language dictionary, and the interpreter’s experience and understanding of the world.2
There is some confusion here. The narrative to which Schwartz and Scott refer is mistakenly included. We cannot determine whether a party performed its contract obligations until after we have identified and interpreted the contract’s terms, which ground the parties’ rights, duties, and powers. The last element also is problematic because it is not an interpretive element, part of what Schwartz and Scott call the evidentiary base, at all. It is not a category of provable facts that judges and juries may take into account when interpreting. Different interpreters, moreover, will come to an interpretive problem with different experiences and understandings.
2Alan Schwartz & Robert E. Scott, Contract Theory and the Limits of Contract Law, 113 YALE L.J. 541, 572 (2003). See also Richard A. Posner, The Law and Economics of Contract Interpretation, 83 TEXAS L. REV. 1581, 1606 (2005).
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Schwartz and Scott understand the world through the lens of economics; others see the world through such lenses as common sense, religion, philosophy, and social science. For the sake of predictability and equal treatment, a key function of the law and the evidence is to leaven these differences by providing an obligation to follow the law, common legal standards, and evidence made relevant by the legal standards. It is hard to believe that contracting parties would want the resolution of their disputes to turn on whether the interpreter is an economist, a philosopher, or a common sense lawyer. The interpreter’s experience and understanding of the world consequently should be excluded in principle, though it inevitably will have some effect. We are left (by the best interpretation of the passage) with literalism—the contract’s words and the dictionary.
§ 2.1.1. The Words of the Contract
Contract interpretation normally involves identifying a contract’s terms and giving meaning(s) to those terms. Interpretive issues frequently (but surely not always) focus on a single word. An issue then can be stated in the following way: Is a tomato a vegetable within the meaning of the contract? Interpretive questions in contract cases do not arise in the abstract, as though the issue could be stated as, What is a tomato? Rather, they arise when interpreting a particular contract as a step preliminary to applying its terms to the facts of a case to determine whether or not a party breached. Literalism focuses interpretation on a single word as defined in the dictionary. The dictionary, of course, provides general definitions of words. Literal interpretation does not take into account even the document as a whole, much less sentence or structural ambiguities. The holistic idea of a document contemplates meaning(s) that may be different from the sum of a whole document’s individual words, taken one by one according to a dictionary (if summing words makes sense). When the courts speak of a contract as a whole, they suppose that the relevant meaning(s) may be of a word, a sentence, a paragraph, or even the whole document, and that one part of a document may shed light on the meaning or intention of another.3 Practically speaking, focusing on a single word might be unobjectionable in some cases, as when one party
3 See § 5.2.2.
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offers an absurd meaning for a key word and the other offers a reasonable meaning.4 There are, however, many other kinds of interpretive disputes and better ways to ascertain the meaning(s) of terms.
§ 2.1.2. Dictionaries
Dictionaries provide lists of a word’s definitions along with the grammatical functions of the word (noun, verb, adjective, etc.) on the list. Courts and other interpreters under all theories use dictionaries, sometimes including legal dictionaries,5 at least to identify candidates for an apt interpretation. Literalism tells them to use only the dictionary. The dictionary, however, often does not suffice for giving apt meaning(s) to contract terms. A dictionary typically gives several definitions and grammatical functions for each word. Different dictionaries may give different definitions. Their definitions may not make the fine distinctions needed to resolve an interpretive dispute.6 They do not provide criteria for choosing among the multiple meanings and grammatical functions. The meanings, moreover, are cast in words. Conceptually, the user of a dictionary must define the words in the definition, define the words in the definition of the definition, and so forth ad infinitum. As we will see in the next section, choosing from among the dictionary meanings and grammatical functions, when there are more than one of each, requires an interpreter to employ contextual elements, at least implicitly. Yet literalism eschews all context.
§ 2.1.3. Literalism and Context
In truth, a literalist or any other interpreter considers context at least implicitly when using a dictionary. As Professor Arthur L. Corbin insisted, context is essential to finding the meaning of language.7 Thus, an interpreter considers the sentence or phrase in which a key word appears, which sentence or phrase is the smallest part of the key term’s context,
4 |
USA Life One Ins. Co. of Indiana v. Nuckolls, 682 N.E.2d 534, 538–40 (Ind. 1997). |
5 |
E.g., Williams v. Metzler, 132 F.3d 937, 947 (1st Cir. 1997). |
6 |
Teg-Paradigm Environmental, Inc. v. United States, 465 F.3d 1329, 1340 (Fed. Cir. |
|
2006). |
7 |
See 3 A. CORBIN, CORBIN ON CONTRACTS § 542 (1961). |
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though in many cases even a sentence may be inadequate. She also considers the rules of grammar and punctuation, not only the functions of words.8 The dictionary identifies the part of speech that goes with each definition. If it does not list two noun meanings, or two verb meanings, etc. (as is often the case), an interpreter might infer the meaning that the word has in the contract’s key sentence or phrase from the definition and the word’s grammatical function in a sentence. This is the closest even a literalist can come to literalism unless the dictionary gives one and only one grammatical function and one and only one meaning (which is unusual), and the meaning is precise enough to settle the dispute and the problem of defining the words in the definition is put aside.
It seems probable that an interpreter, supposing herself to be a literalist, implicitly and perhaps unconsciously but inevitably, uses more context than just a sentence or phrase. In Steuart v. McChesney,9 for example, a potential buyer of real property held a right of first refusal entitling it to buy the property if the seller received a third party’s good faith offer,
at a value equivalent to the market value of the premises according to the assessment rolls as maintained by the County of Warren and Commonwealth of Pennsylvania for the levying and assessing of real estate taxes.10
In the event, the seller received good faith offers to buy for $35,000 and $30,000. The buyer tendered $7820, representing twice the assessed value of the property as listed on the tax rolls maintained in Warren County. The seller refused to tender a deed, and the potential buyer brought a suit for specific performance. The trial court found that the parties intended the assessed value to serve as “a mutual protective minimum price for the premises rather than be the controlling price without regard to a third party offer.”11 It construed the contract as granting the potential buyer a right to purchase the property for $35,000, the amount of the first offer. The Supreme Court of Pennsylvania, in a well-known opinion, reversed, holding that the contract was unambiguous. It wrote that the writing
8
9
10
11
See New Castle County, Del. v. National Union Fire Ins. Co. of Pittsburgh, Pa., 174 F.3d 338, 347–49 (3d Cir. 1999).
444 A.2d 659, 660 (Pa. 1982). Id. at 660.
Id. at 661 (quoting the Court of Common Pleas).
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“speaks for itself,”12 although it also wrote that “the language of the Right of First Refusal, viewed in context, is express and clear. . . .”13 The court did not describe what constituted the relevant context.
It is improbable that the court found the key phrase unambiguous after consulting only a dictionary for the meaning of each word and its function in the sentence as a part of speech. Because it sought the parties’ intention as expressed in the document, viewed in context, it is more likely that the court implicitly imagined a context that would make sense of the document as an expression of intention. Thus, it might have imagined that, at the time of contracting, the property had not been sold in some considerable time. No appraisal was commissioned, so its market value was unknown. No offers from other buyers were on the table. The parties did not know whether the market value would go up or down before the seller received a good faith offer from a third party. The parties did not know whether a good faith offer would reflect the market value. They assumed that the assessed value would be the market value. Though this imagined context includes a critical erroneous assumption, it or something like it might well have been the context of contracting in Steuart. If so, the result arguably would reflect the parties’ intention, misguided though they both may have been.
Is this imaginary context suggestive of what Schwartz and Scott would include as “the interpreter’s experience and understanding of the world?” Perhaps. The interpreter’s experience and understanding, however, would consist of the interpreter’s implicit context, not everyone’s, and not likely the parties’. Corbin strongly and rightly objected to interpretation using the interpreter’s context instead of the parties’.14 Using the interpreter’s context injects arbitrariness into the process; it bears no reliable relation to the parties’ intention and, indeed, may be quite foreign to them.
An important difference between literalism, on one hand, and objectivism or subjectivism, on the other, is that literalism hides the contextual elements it employs only implicitly. It precludes proof of, or argument about, those elements. The legal rules implementing the other theories, by contrast, expose their contextual elements to view. Under the other
12Id. at 661 ((quoting Ease Crossroads Center, Inc. v. Mellon-Stuart Co., 205 A.2d 865, 866 (Pa. 1965)).
13Id. (emphasis added).
14CORBIN, supra note 7, at § 542.