constructions, one [of] which imputes bad faith to one of the parties and the other does not, the latter construction should be adopted.105

This is not the place to elaborate on what good faith and fair dealing permit or require of a party.106 Suffice it to say that the implied covenant is not an element but, instead, is a guide to interpretation (as well as an implied term). Like the Restatement (Second)’s standards of preference in interpretation, it helps an interpreter choose between conflicting meanings advanced by the parties.

§ 2.5. Relevant Non-Interpretive Rules

The Restatement (Second) prefers a different tack, though it is not followed by most courts. Adopting a strikingly subjective theory, its main provision on interpretation says that:

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.107

There are, however, very few cases indeed in which a court has found that the parties both attached the same meaning.108 The question of a shared meaning arises only when there is an interpretive dispute. Though it is possible for a party to contend for a meaning that is different from a meaning that both parties attached when the contract was formed, proof of the past shared meaning is likely to be difficult. Moreover, realistically, many interpretive disputes probably arise when neither party attached a relevant meaning to the contested language when the contract was formed. The language of contracts of even moderate complexity governs many disputes that the parties (and their lawyers, if any) did not think about.

105Martindell v. Lake Shore Nat’l Bank, 154 N.E.2d 683, 690 (Ill. 1958). See also Milstein v. Security Pac. Nat’l Bank, 103 Cal. Rptr. 16, 18–19 (Cal.App. 1972); Ryder Truck Rental, Inc. v. Central Packing Co., 341 F.2d 321, 323–24 (10th Cir. 1965).

106See generally 2 E. ALLAN FARNSWORTH, FARNSWORTH ON CONTRACTS § 7.17b (3d ed. 2004); STEVEN J. BURTON & ERIC G. ANDERSEN, CONTRACTUAL GOOD FAITH: FORMATION, PERFORMANCE, BREACH AND ENFORCEMENT (1995); RESTATEMENT (SECOND) OF CONTRACTS § 205 (1981); Steven J. Burton, Breach of Contract and the Common Law Duty to Perform in Good Faith, 94 HARV. L. REV. 369 (1980).

107RESTATEMENT (SECOND) OF CONTRACTS § 201(1) (1981).

108FARNSWORTH, supra note 106, at § 7.9, p. 279.

Pace the Restatement (Second),109 the courts generally do not dismiss such cases due to a failure of mutual assent; rather, most courts apply the contract’s language, interpreting it in light of the relevant elements.

What happens, though, under the Restatement (Second) when the parties attached different meanings to contested language? For these cases, which are common, it shifts from an interpretive rule ((§ 201(1)) to a fault principle:

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 them if at the time the agreement was made

(a)that party did not know of any different meaning attached by the other, and the other knew the meaning attached by the first party; or

(b)that party had no reason to know of any different meaning attached by the other, and the other had reason to know of the meaning attached by the first party.110

Put more simply, this provision penalizes the party that could have forestalled the dispute by drafting the contract more carefully. It favors the other party’s meaning. In some jurisdictions, it is an important supplement to interpretation, though it can involve difficult problems of proof. But the rule, as a fault rule, does not aim to implement the parties’ (objective or subjective) agreement based on the elements of contract interpretation. It is therefore a non-interpretive rule for resolving interpretive disputes.

There are other non-interpretive rules for resolving interpretive disputes. These are default or closure rules, which apply when the parties have not otherwise agreed—that is, when interpretation fails. The most prominent of these is the rule requiring, usually as a last resort, interpretation against the drafter when there is only one.111 Again, this rule penalizes the party that could have forestalled the dispute by drafting the contract more carefully. It is based on a fault principle, not the parties’ agreement, and is not an element of or guide for interpretation. There are a good many such default rules, especially under the UCC.112

109RESTATEMENT (SECOND) OF CONTRACTS § 201(3) (1981) (failure of mutual assent occurs when the parties attached different meanings and neither knew nor should have known of the meaning attached by the other).

110RESTATEMENT (SECOND) OF CONTRACTS § 201(2) (1981).

111See § 5.3.2.

112UCC § 1-302 (2001).