Interpretation

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Hierarchy of Interpretation

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1. Other written or oral agreements
2. Surrounding circumstances
3. Course of Performance
4. Course of Dealing
5. Usage of Trade
6. Statutory/Judge-made default rules
7. General standards of Reasonableness

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Interpretation (in general)

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• Parties aren’t trying to admit evidence to add new terms to the written K, but rather to interpret the meaning of the terms already in there.
• First, you have to determine a term is ambiguous. → Can decide the meanings by either the 4 corners test or plain meaning (contextual) approach.
• In the case of ambiguous terms, extrinsic evidence is evaluated by the jury. If the term is unambiguous, then the judge decides what it means.

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Interpretation: Judge or jury?

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• In the case of ambiguous terms, extrinsic evidence is evaluated by the jury. If the term is unambiguous, then the judge decides what it means.

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Pacific Gas and Electric Co. v. G.W. Thomas Drayage and Rigging Co.

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{Consider extrinsic evidence regarding interpretation of a term - to understand what the parties intended!}
• D contracted to repair P’s steam turbine engine. There was an indemnity clause in the K that P was to work at its own risk and P was insured against all loses and damages. D agreed not to get less than $50,000 of insurance for the project. Turbine was subsequently damaged, P claimed that it was protected against liability (i.e. having to pay for damages), while D said the indemnity clause was only to cover damages to 3rd party property.
• HOLDING: Extrinsic evidence showing the intent of the parties could be excluded only when it’s feasible to determine the meaning of the words from the instrument alone. Rational interpretation requires at least an initial consideration of all credible evidence to prove the intention of the parties.
• Test for admitting parol evidence for interpretation → whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible.
• We can’t limit interpretation to only what the judge/jury thinks! → It would be more helpful to admit parol evidence to better understand what the PARTIES INTENDED when the entered the contract!
• This intended meaning of a writing can only be found by interpretation in the light of all the circumstances that reveal the sense in which the writer used the words.

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Test for admitting parol evidence for interpretation

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Whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible.
--Extrinsic evidence showing the intent of the parties could be excluded only when it’s feasible to determine the meaning of the words from the instrument alone. Rational interpretation requires at least an initial consideration of all credible evidence to prove the intention of the parties.

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Why do we admit parol evidence for interpretation?

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• We can’t limit interpretation to only what the judge/jury thinks! → It would be more helpful to admit parol evidence to better understand what the PARTIES INTENDED when the entered the contract!
o This intended meaning of a writing can only be found by interpretation in the light of all the circumstances that reveal the sense in which the writer used the words.

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Frigaliment Importing Co. v. B.N.S. International Sales Co.

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{Party claiming a special meaning has burden of proving it; Trade usage universally known?}
• P ordered a large quantity of chicken from D (new to the business), intending to buy young chicken suitable for broiling and frying. But D believed, in considering the weights ordered at the prices fixed by the parties, that the order could be filled w/ older chicken (suitable for stewing only). P brings a breach of warranty action (the goods you supplied don’t correspond to the quality that was bargained for).
• HOLDING: The party that advocates a special meaning for a contractual term has the burden of proving that the special meaning was the one intended by both parties. → P was unable to prove that ‘chicken’ only meant young chicken for broiling.
• When one of the parties is a newcomer to the trade, it must appear that he had actual knowledge or that the usage is so generally known in the community that his general knowledge of it must be inferred
o → Crt ruled that universality of ‘chicken’ meaning ‘broilers’ wasn’t that well known. And since D was new to the industry that he wouldn’t know of the “trade usage.”
• What would have been the remedy used here? → P would get damages for the difference b/w the chicken as promised and the chicken as supplied (like the Hand surgery case)

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Who has the burden of proving that the special meaning was actually intended by both parties?

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The party that advocates a special meaning for a contractual term has the burden of proving that the special meaning was the one intended by both parties.

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When one of the parties is a newcomer to the trade...

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• When one of the parties is a newcomer to the trade, it must appear that he had actual knowledge or that the usage is so generally known in the community that his general knowledge of it must be inferred.