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It is wrong to say that a contract ever “speaks for itself ” on a question of meaning, as the supreme courts of Illinois and Pennsylvania have said.30
The necessity of context for ascertaining meaning(s) is the strongest argument against the four corners rule here. Objective contextual interpretation provides the objective context, including the dictionary, the whole document, the objective circumstances at formation, any trade usages, the document’s evident purpose(s), any practical construction, and other objective elements. Though not as extensive a context as subjectivism’s, the objective context is more than sufficient to ascertain nonarbitrary meaning(s).
In any event, harm to the contractual freedoms would be outweighed by the other goals. Parties and others who rely on conventionally unambiguous meanings, in particular, normally should have their expectations and reliance protected. Even when the parties shared a contrary intention when the contract was made, subparts of firms and subcontractors, as well as some other third parties, generally do not have access to the negotiating records and should not have to interview the negotiators. Only if litigation ensues and rights to discovery come into play, if then, does it become feasible to look for subjective intentions as to the meaning(s) of language when the intentions are the other party’s and different from conventional meaning(s). The parties and others, however, should be able to avoid disputes by following their contracts and to settle their disputes reasonably in accordance with their contracts, without resorting to litigation. By objectifying the question of ambiguity, and taking unambiguous contracts from the fact-finder, objective contextual interpretation enhances predictability and hence promotes performance and settlement. (Strong subjectivism, by contrast, sends potentially every interpretive dispute to the finder of fact because it tends to dispense with the question of ambiguity.) Again, parties can be held to their manifested intentions fairly because they are in a good position to manifest intentions that mirror their subjective intentions, if there might be a difference.
§ 6.1.3. Resolving Ambiguity
Once the court has decided that a contract is relevantly ambiguous, the contract document and extrinsic evidence of the objective context should
30 Air Safety, Inc. v. Teachers Realty Corp., 706 N.E.2d 882, 884 (Ill. 1999); Steuart v. McChesney, 444 A.2d 659, 661 (Pa. 1982).
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be admissible. The case will move to the fact-finder, often the jury. If there is no disputed extrinsic evidence or controversy over the inferences to be drawn from it, however, the ambiguity should be resolved by the court.
The fact-finder should consider the same elements that the court considered when deciding the question of ambiguity, including the whole document, the contract’s purpose(s), the objective circumstances when the contract was formed, any trade usages, and any practical construction. The admissible evidence should not include evidence of the course of the parties’ negotiations, statements of intention during their negotiations, a parties’ testimony about its own past intention, the parties’ course of dealing, and any other evidence that is relevant solely to the parties’ subjective intentions. If there is a jury, the instruction should identify the relevant ambiguity in the contract document and the parties’ contentions with respect to that ambiguity. It should tell the jury to choose between the contentions in order to give the document the meaning that the parties intended. By admitting evidence only of the parties’ objective intentions, the result should be a verdict based on a finding of the parties’ objective intentions as manifested. When a judge serves as a fact-finder, of course, he or she should apply the same law.
By contrast, existing law generally requires the court to decide the question of ambiguity based on what is within the four corners of the document. The jury is allowed to resolve an ambiguity based on all relevant evidence and is allowed to find the parties’ subjective intentions. This shift at different procedural stages from a strong objective theory to a fully subjective theory is puzzling. Why should some contract parties be limited to an unambiguous meaning that appears from within the document’s four corners, while other contract parties are entitled to a resolution of an ambiguity based on all relevant evidence, including evidence of subjective intentions? There lurks beneath this disjoint treatment a potential impairment of Rule of Law values, which require equal treatment before the law. Consider two cases. In both, the parties’ objective intention contradicts their mutual subjective intentions. In the first, a party wins on the question of ambiguity based on the four corners rule, i.e., the contract is held to be unambiguous. The parties’ objective intention governs. In the second, the contract is held to be ambiguous and the case goes to the jury, and the parties’ subjective intentions govern. We get contradictory outcomes due to the difference in theories and elements, not any difference in the parties’ objective or subjective intentions, respectively. By using one theory for both decisions, by contrast, the same party intention would govern.
Objective Contextual Interpretation |
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Objective contextual interpretation favors an objective theory for now-familiar reasons. To review, any harm to the contractual freedoms would seem to occur in an unusual case and, therefore, to be unimportant for a practical theory. Any such harm is outweighed by the other goals. Parties and others who rely on the conventional meaning of a contract or a term normally should have their expectations and reliance protected. Even though the parties shared a contrary intention when the contract was made, subparts of firms and subcontractors, as well as some other third parties, generally do not have access to the negotiating records and should not have to interview the other party’s negotiators. The negotiators may be unavailable in any event; for instance, they may have left the employ of a party. Only if litigation ensues and rights to discovery come into play, if then, does it become feasible to look for subjective intentions when they are different from the relevant conventional meaning(s). The parties and others, however, should be able avoid disputes by performing their contracts, and to settle their disputes reasonably in accordance with their contracts, without resorting to litigation. By objectifying the resolution of ambiguity, objective contextual interpretation enhances predictability and hence promotes performance and settlements. Parties can be held to their manifested intentions fairly because they are in a position to manifest intentions that mirror their subjective intentions.
Subjectivism is at least as problematic here as it is on the question of ambiguity. To review, subjectivism’s underlying theory of meaning is untenable. It supposes that what was in the mind of a speaker or hearer, a reader or writer, constitutes the meaning of the language he or she used. Subjectivism thus reduces true interpretive disputes, in the first instance, to a ridiculous battle between Humpty Dumpty and Dumpty Humpty.31 And we surely can be mistaken about the meaning of language we speak or hear. The reason is that a language community’s conventions of language use constitute the meanings of language used in a context.
Further, when what was in the parties’ minds differs, subjectivism turns to a fault principle to decide which of the parties’ attached meanings shall govern. Thus, Section 201(2) of the Restatement (Second), quoted above,32 gives a party the meaning it attaches to contract language if the other party knew or had reason to know of that meaning, and the
31See § 6.1.2.1.
32See id. (text accompanying note 17).