circumstances described above, which bear on their objective intentions.87 The latter circumstances also may bear on the parties’ subjective intentions. Again, the distinction depends on the target of the inferences that an interpreter draws from the circumstances.88 A subjectivist court may consider some of the elements discussed above, such as the parties’ prior course of dealing and the course of negotiations, as a part of the circumstances.89 When these elements are so considered, the circumstances bear only on the parties’ subjective intentions. An objectivist interpreter, by contrast, would not consider the parties’ prior course of dealing or the course of negotiations to be a part of the circumstances relevant to interpretation. These elements are specific to the parties and would not be taken into account by a reasonable person giving meaning to the contract’s language.

§ 2.4. Guides to Interpretation

§ 2.4.1. “Standards of Preference in Interpretation”

The Restatement (Second) distinguishes between so-called “rules in aid of interpretation” and “standards of preference in interpretation.” The distinction is obscure. We can make sense of it, however, by considering the specifics that fall under each of these rubrics in terms of elements, which are factual and susceptible to proof, and guides to interpretation, which are legally normative considerations. The Restatement (Second’s) rules in aid of interpretation, which are not “rules” but factors to be considered, thus include the circumstances, the parties’ principal purpose, a written document as a whole, the generally prevailing meaning of contract language, and the course of performance, all of which are elements.90 The standards of preference in interpretation, by contrast, tell an interpreter how to weigh competing elements when several are evidenced in a

87Matter of Riconda, 688 N.E.2d 248, 251–53 (N.Y. 1997); Muskingum Coal Co. v. Eastern Hocking Coal Co., 122 N.E.2d 408, 411 (Ohio App. 1953); Thermalito Irrigation Dist. v. California Water Service Co., 239 P.2d 109, 116 (Cal.App. 1951).

88See § 2.3.

89Mobil Exploration and Producing U.S., Inc. v. Dover Energy Exploration, L.L.C., 6 S.W.3d 772, 776–77 (Tex.App. 2001); Hamilton v. Wosepka, 154 N.W.2d 164, 171 (Iowa 1967).

90RESTATEMENT (SECOND) OF CONTRACTS § 202 (1981).

the parties’ intention in a particular contract in question better than any course of performance, course of dealing, or usage of trade. Indeed, subsection (b)’s hierarchy consists of increasingly more general elements of interpretation, increasingly remote from the parties’ minds when making the contract in question. Subsection (c) gives a preference to which of two conflicting terms the parties better focused on, i.e., the more specific term, again reflecting the subjective theory. Subsection (d), yet again reflecting the subjective theory, gives the course of negotiations, which are particular to the parties, preference over standardized terms, which are not. Again, this preference focuses on that which the parties focused on, better implementing their subjective intentions.

§ 2.4.2. Canons of Interpretation

The whole contract lays a basis for bringing into play many of the canons of contract construction. They are guides to interpretation, not elements as the term is used here. It is easy to apply the canons of construction, so the main ones will be mentioned briefly. One canon holds that all of the words of an agreement should be construed wherever possible as consistent with one another—to produce a harmonious whole.93 Another holds that all of the words in an agreement should be given effect if possible (the mere surplusage rule).94 A third holds that specific terms prevail over general terms if there is a conflict.95 A fourth, expressio unis est exclusio alterius (when one thing is expressed, all excluded things are omitted), is not often used.96 Ejusdem generis provides that, when general, catch-all words (such as “all other causes”) follow a sequence of specific words (such as a list of force majeure events), the general words have the discrete characteristics of the specific words.97 Noscitur a sociis says that words or terms in a contract should be understood with reference to those that accompany them.98 And a word’s meaning in one part of a contract is

93E.g., Kinek, 22 F.3d at 509; Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983); RESTATEMENT (SECOND) OF CONTRACTS § 202(5) (1981).

94E.g., Malleolo v. Malleolo, 731 N.Y. S.2d 752, 753 (App.Div. 2001); Fraternal Order of Police, Lodge No. 69 v. City of Fairmont, 468 S.E.2d 712, 718 (W.Va. 1996).

95Iowa Fuel & Minerals, 471 N.W.2d at 863.

96LaSalle Nat. Bank v. Triumvera Homeowners Ass’n, 440 N.E.2d 1073, 1084 (Ill.App. 1982).

97In re Enron Creditors Recovery Corp., 380 B.R. 307, 322–23 (S.D.N.Y. 2008).

98Resource Bank v. Progressive Cas. Ins. Co., 503 F.Supp.2d 789, 796 (E.D.Va. 2007).

presumed to be its meaning wherever it appears.99 Most courts now reject (as they should) a canon which says that the first of two clauses set forth in a contract presumptively prevails over a conflicting later one.100 A further rule that some think of as a canon of interpretation, though it is a default rule because it has nothing to do with the parties’ intention, provides that ambiguities shall be resolved against the drafter.101 (Note that, in a broad sense, all of the rules and standards of interpretation may be thought of as canons of construction. Note also that some courts treat the canons as discretionary, subordinating them to the parties’ intention when otherwise shown.102)

Some canons, though not canons of interpretation, reflect public policy rather than aids in ascertaining the parties’ intention. These canons are available to an interpreter only when resolving an ambiguity. Thus, if a contract or term is relevantly ambiguous, and one meaning-branch of the ambiguity violates public policy, that branch obviously should be excluded, leaving the other meaning as the unambiguous meaning. Arguably, the resolution of ambiguities against the insurer in insurance contracts, special canons enacted by legislatures for specific kinds of contracts, and other similar canons, are based on public policy or other non-interpretive considerations.103

§ 2.4.3. Good Faith in Interpretation

In every contract, there is an implied covenant of good faith and fair dealing.104 It sometimes controls the question of ambiguity. One meaningbranch of an ambiguity might allow a party to perform the contract in bad faith. When this is so, the other meaning-branch should be adopted as the unambiguous meaning:

Every contract implies good faith and fair dealing between the parties to it, and where an instrument is susceptible of two conflicting

99ML Direct, Inc. v. TIG Specialty Ins. Co., 93 Cal.Rptr.2d 846, 850 (Cal.App. 2000).

100Compare Extermitech, Inc. v. Glasscock, Inc., 951 So.2d 689, 694 (Ala. 2006) with Mealey

v. Kanealy, 286 N.W. 500, 502–03 (Iowa 1939).

101See §§ 5.3.1, 5.3.2.

102One South, Inc. v. Hollowell, 963 So.2d 1156, 1162 (Miss. 2007).

10320th Century Ins. Co. v. Super. Ct., 109 Cal. Rptr. 2d 611 (Cal.App. 2001); Bullwinkel v. New Eng. Mut. Life Ins. Co., 18 F.3d 429, 431 (7th Cir. 1994).

104UCC § 1-304 (2001); RESTATEMENT (SECOND) OF CONTRACTS § 205 (1981).