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one relevant subclass within one relevant class. An ambiguous word bears an array of meanings; it designates more than one relevant class or subclass. If a term is ambiguous, giving meaning involves disambiguating it—selecting a meaning from the array.
In this light, we can see that the parol evidence rule functions to identify a written contract’s terms, which may designate a class or classes of cases to which the contract might apply. The plain meaning rule, by contrast, functions to determine whether a disputed contract term requires disambiguation in order to settle the dispute. If there is one and only one relevant class, the plain meaning rule precludes the admission of extrinsic evidence to show a meaning that the term will not reasonably bear. If there is more than one relevant class or subclass, the term is ambiguous, and extrinsic evidence is admissible to help select a meaning from the term’s array in accordance with the parties’ intention.
The above analysis allows us to distinguish as well between interpretation and application, the latter of which is a fourth step but is outside the scope of this book. Having selected a meaning from within the array of meanings borne by a contract term, one still has a subclass that encompasses concrete cases. Application involves classifying a concrete case within the subclass designated by the unambiguous or disambiguated meaning of a term.
§ 4.3. Unambiguous Contracts
The courts frequently find that a contract is unambiguous. Upon reading many cases, this becomes understandable. It seems that, very often, one party advances a far-fetched interpretation of the document.73 The court excludes that interpretation, leaving only one eligible meaning—that advanced by the other party. The court then finds that the contract is unambiguous, and extrinsic evidence is inadmissible to vary the unambiguous meaning.
The courts do not differ much on the elements of interpretation that may be considered when deciding whether a contract is ambiguous. We can best understand the judicial approaches if we view them in light of the four corners rule, which confines the inquiry to the document on
73 Accord, CORBIN, supra note 8; See § 1.2.1.
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its face. Accordingly, the courts will consider at least the contract as a whole within its four corners.74 Evidence of the context, whether objective or going to the parties’ states of mind, however, will not render an ambiguous contract unambiguous for the purpose of deciding whether to admit extrinsic evidence at this stage of interpretation. Rather, in jurisdictions that recognize extrinsic ambiguities, extrinsic evidence can show that a facially unambiguous contract is, in context, ambiguous.
§ 4.3.1. Literal Meaning of a Word or Phrase
Recall that literalism holds that a contract should be interpreted according to the literal meaning of a governing word or maybe a phrase, as found in a dictionary.75 Again, courts sometimes recite the following mantra or the equivalent:
When the language of a contract is plain and unambiguous, the court must afford it its literal meaning, despite a party’s contention that he had a different understanding of its meaning.76
As indicated above in relation to the plain meaning rule,77 however, such a mantra can be misleading. To review, it amounts to saying, “if contract language has only one meaning, the court must afford it that meaning.” If there were another meaning, the language would be ambiguous, and a literal meaning rule could not apply. The sentence as a whole equates the literal meaning with the unambiguous meaning, if any.
The courts seem to understand that the mantra does not necessitate literal, acontextual interpretation in any case. Thus, after reciting it, one court went on to read a reasonableness requirement into all contracts and to explain the requirement as follows:
The language of a contract should be construed with reference to the situation of the parties, the business to which the contract relates, the subject matter of the agreement, the circumstances surrounding
74See CB & H Business Services, L.L.C. v. J.T. Comer Consulting, Inc., 646 S.E.2d 843, 844–45 (N.C.App. 2007).
75See § 2.1.1.
76Sofran Peachtree City, LLC v. Peachtree Holdings, LLC, 550 S.E.2d 429, 432 (Ga.App. 2001).
77See § 4.2.1.
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the transaction, and the construction placed on the contract by the parties in carrying out its terms.78
By entertaining these extrinsic, contextual elements, the court endorsed objectivism, not literalism, despite its recitation of the mantra. Many, though mostly minor, opinions can be cited to the same effect.79 Few courts indeed employ literalism literally.
Judge Posner, writing for the US Court of Appeals for the Seventh Circuit, has come closest to endorsing true literalism:
Disputes over the meaning of a written contract are ordinarily resolved by reference to the meaning of the contract as it would be gathered by a reader competent in English (if the contract is in English) and reasonably endowed with common sense. . . . This “literalist” approach is desirable because it gives contracting parties the security of knowing that their contract will be interpreted in the event of a legal dispute to mean what it says, rather than being interpreted to mean what a judge or jury, perhaps misled by selfserving testimony by one of the parties, might think it should have said.”80
Nonetheless, Judge Posner treats literalism only as a presumption. The presumption can be overcome by objective evidence “that the contract does not mean what it says.”81 Allowing a party to overcome the presump- tion—even by contradicting its supposedly literal meaning—opens the door widely to objective evidence drawn from the contract’s context. One comes closer to literalism if the objective contextual evidence must make out a “compelling case” for departing from the literal meaning (if there was one).82 Even so, this is not an endorsement of true literalism.
78 Harper-Wittbrodt Automotive Group, LLC v. Teague, 2006 WL 2706148 (Tenn.App. 2006); see Dunn v. Duncan, 2006 WL 1233046 (Tenn.App. 2006); Newman v. RAG Wyoming Land Co., 53 P.3d 540, 544–50 (Wyo. 2002).
79E.g., Memphis-Shelby County Airport Authority v. Illinois Valley Paving Co., 2006 WL 2385300, *4–6 (W.D. Tenn 2006) (taking into account several provisions of the contract); United States v. Rand Motors, 305 F.3d 770, 775 (7th Cir. 2002) (taking into account the commercial context); Georgia Farm Bureau Mutual Insurance Co. v. Ray, 251 S.E.2d 34, 35 (Ga.App. 1978) (taking into account the whole contract).
80Airline Pilots Ass’n, Intern. v. Midwest Express Airlines, Inc., 279 F.3d 556, 556 (7th Cir. 2002).
81Id.
82PMC, Inc. v. Sherwin-Williams Co., 151 F.3d 610, 615 (7th Cir. 1998).
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There are good reasons why, when determining whether a contract is ambiguous, the courts do not insist on giving a contract’s language a literal, acontextual meaning. Advocates of the literalist approach never articulate what it is that should be interpreted literally—a word, a phrase, a paragraph, the contract as a whole, or more.83 We should dismiss literal meanings of words in isolation because words too often are ambiguous, as any good dictionary will attest.84 Some context—and a purpose—is required to select from a dictionary’s array of meanings.85 Consequently, a charitable view of literalism would point to a phrase or more. But a dictionary will not give the meaning of a phrase, a paragraph, or the contract as a whole.
In addition, literalism can give a contract an arbitrary meaning due to the mere happenstance of the language employed. A lease, for example, may state that the lessee shall be liable for harm to the premises caused “intentionally or non-intentionally.”86 A court should not hold the lessee strictly liable for harms that occur unintentionally and non-negligently— perhaps especially if the drafters testify that strict liability was not their intention.87 Accordingly, the law eschews literalism by providing that no contract should be given an unreasonable or absurd meaning.88 Further, even in objectivist jurisdictions, “to carry out the intention of a contract, words may be transposed, rejected, or supplied, to make its meaning more clear.”89 Judge Posner has written:
[A] contract will not be interpreted literally if doing so would produce absurd results, in the sense of results that the parties, presumed to be rational persons pursuing rational ends, are very unlikely to have agreed to seek.90
83See Alan Schwartz & Robert E. Scott, Contract Theory and the Limits of Contract Law, 113
YALE L.J. 541, 572 (2003).
84Lorillard Tobacco Co. v. American Legacy Found., 903 A.2d 728, 740 (Del.Super. 2006); Gulf Metals Ind., Inc. v. Chicago Ins. Co., 993 S.W.2d 800, 806 (Tex.App. 1999).
85See § 2.1.3.
86Allstate Ins. Co. v. Watson, 195 S.W.3d 609 (Tenn. 2006).
87Id. at 612.
88Beanstalk Group, Inc. v. AM General Corp., 283 F.3d 856, 860–61 (7th Cir. 2002); Outlet Embroidery Co., Inc. v. Derwent Mills, 172 N.E. 462, 463 (N.Y. 1930) (“If literalness is sheer absurdity, we are to seek some other meaning whereby reason will be instilled and absurdity avoided.”) (Cardozo, C.J.).
89Castellano v. State, 374 N.E.2d 618, 620 (N.Y. 1978).
90U.S. v. Barnett, 415 F.3d 690, 692 (7th Cir. 2005).